The market bounced a bit Friday across the board in a holiday shortened session. The S&P 500 is close to the August lows. If it can build on Friday's boost then the next major resistance level is 1490. If it breaks below about 1410 there could be some real damage on technical selling. Between here and 1490, expect professional traders to by dips and sell into strength. In a solid breakout above 1490 expect more sustained buying into strength.
The Nasdaq bounced Friday after hitting almost exactly a 10% decline to 2575 from the highs. I believe that when stocks do begin a move up tech will recover the fastest - especially big tech that is leveraged to international growth. Certainly there will be some buying of techs if they stay above the 2575 level.
This week will contrast economic data confirming that the economy is slowing with the usual year-end optimism and holiday retail sales that appear to be off to a strong start.
Recessions typically occur when consumers significantly reign in spending or when credit markets seize up. We certainly have a long ways to go before the credit markets can regain a robust level of liquidity. The consumer is the wild card. However, Americans have an ability to spend any money they have and then some, regardless of the economic conditions.
The subprime mortgages that will default is not enough to cause a recession on its own. But if it causes the above to take place then it certainly can happen. Aside from the lack of fully functioning credit markets, the most important drivers of the consumer will be jobs and income. I will be watching these two items closely.
Disclosure: at the time of this posting the author was long SPY.
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