Market Close, July 18, 2006

Once again, we are at a crossroads. This time its the tug of war about whether the Fed will pause in August, with all the new evidence the economy is growing more slowly. Or whether it is continuing to grow too rapidly in light of the industrial production increase at twice the expected rates.

We did get an intraday buy signal today in the Dow Jones Industrials and S&P 500. We are still in intermediate term downtrend, but we could get a bounce based on the way the charts are being interpreted.

Wednesday's CPI report will be extremely important. The PPI report today showed the core inflation rate of manufacturers increased to a higher year over year rate than the Fed is comfortable with.

If the CPI is tame, we could get the tradable rally and along with the fact that this is options expiration week, we may get the pop we have been looking for. Its just taken a lot longer than we expected. Which could limit any upside potential.

We will be back tomorrow with the CPI results.

We have not changed our suggestions: cash, short term Treasuries, utilities.

Good Trading,

Joe