Damage Control

The stock market muddled through last week with just one positive day on Thursday with a meager 8-point gain on the Dow Industrials. Other well-followed benchmarks fell on the week too: S&P 500 off 2.8% and Nasdaq Composite –3.8%. Banks, insurance, health care and utility stocks bucked the trend somewhat, still falling 0.9% to –1.8%. Gold fell $27 or 4% while oil prices were down just $1. With the sharp sell-off, the stock averages mentioned above are mostly positive for 2006. That should be no consolation for most investors. The market’s behavior has been telling us for 3 weeks now to watch out, don’t commit more money to stocks, lock in gains, and to watch our charts for signs of a climate change where the risk levels are lower and a confirmation to buy is evident. If you define a bear market as a 10% or more fall in prices, then the Nasdaq Composite and smaller stock Russell 2000 entered bear territory last week. Will more indices follow them down?
Wednesday’s Consumer Price Index Report will be a key statistic to watch, as the Federal Reserve has noted that inflation control will be their major impetus. Stay tuned…