om 1,205 to 1,230, and failed to trigger a Parabolic SAR buy signal (red dots), by rising just above 1,230.

However, after SPX eventually breaks out of the symmetrical triangle pattern (most likely in October), there are major resistance levels around 1,250, i.e. a multi-year Fibonacci level, the monthly upper Bollinger Band, and recent high, and major support levels around 1,200, i.e. 200 day MA, psychological support, and recent low. The stronger resistance levels suggest that, in Oc

The U.S. economy has slowed in 2005 after 2 1/2 years of robust growth. Moreover, growth has decelerated further from the recent impacts of hurricanes and persistently high oil prices. However, a boost in government expenditures to rebuild the areas hit by hurricanes Katrina and Rita may accelerate growth later in the year or early next year.

Monetary policy remains accommodative. The slow and steady tightening cycle has generally been effective in preempting inflation. However, the Fed Funds Rate may need to rise above 5% to reach a neutral stance. Also, fiscal policy remains stimulative. Government tax cuts are still in place and expenditures continue to be high. Consequently, the risk of stagflation is higher (i.e. lower growth with higher inflation). Inflation is the mechanism that prevents an economy from expanding greater than it's capacity over time, and the Fed will continue to tighten the money supply to maintain price stability.

The Federal Reserve uses crude tools to smooth-out the business cycle. It controls the money market, through the commercial banking system, which indirectly controls the goods and labor markets. However, the Fed has little or no effective control over other markets, including the housing, bond, stock, commodities, and foreign exchange markets, because it doesn't posses the tools to fine-tune the economy. Sustainable growth for the largest economy in the world is about 2.8% real growth. If the Fed can achieve and maintain 2.5% to 3% real growth, through price stability, then it has succeeded in "optimizing" the economy.

The chart below is an SPX daily chart over the past four months. SPX rallied to a four-year high two months ago, which marked the beginning of a "symmetrical triangle," which is a neutral technical pattern. This pattern will compress the SPX trading range, currently between 1,208 and 1,242, until there's a decisive breakout, on heavy volume, to upside or downside. SPX rose last week from 1,205 to 1,230, and failed to trigger a Parabolic SAR buy signal (red dots), by rising just above 1,230.

However, after SPX eventually breaks out of the symmetrical triangle pattern (most likely in October), there are major resistance levels around 1,250, i.e. a multi-year Fibonacci level, the monthly upper Bollinger Band, and recent high, and major support levels around 1,200, i.e. 200 day MA, psychological support, and recent low. The stronger resistance levels suggest that, in Oct

d Funds Rate may need to rise above 5% to reach a neutral stance. Also, fiscal policy remains stimulative. Government tax cuts are still in place and expenditures continue to be high. Consequently, the risk of stagflation is higher (i.e. lower growth with higher inflation). Inflation is the mechanism that prevents an economy from expanding greater than it's capacity over time, and the Fed will continue to tighten the money supply to maintain price stability.

The Federal Reserve uses crude tools to smooth-out the business cycle. It controls the money market, through the commercial banking system, which indirectly controls the goods and labor markets. However, the Fed has little or no effective control over other markets, including the housing, bond, stock, commodities, and foreign exchange markets, because it doesn't posses the tools to fine-tune the economy. Sustainable growth for the largest economy in the world is about 2.8% real growth. If the Fed can achieve and maintain 2.5% to 3% real growth, through price stability, then it has succeeded in "optimizing" the economy.

The chart below is an SPX daily chart over the past four months. SPX rallied to a four-year high two months ago, which marked the beginning of a "symmetrical triangle," which is a neutral technical pattern. This pattern will compress the SPX trading range, currently between 1,208 and 1,242, until there's a decisive breakout, on heavy volume, to upside or downside. SPX rose last week from 1,205 to 1,230, and failed to trigger a Parabolic SAR buy signal (red dots), by rising just above 1,230.

However, after SPX eventually breaks out of the symmetrical triangle pattern (most likely in October), there are major resistance levels around 1,250, i.e. a multi-year Fibonacci level, the monthly upper Bollinger Band, and recent high, and major support levels around 1,200, i.e. 200 day MA, psychological support, and recent low. The stronger resistance levels suggest that, in Oc

de tools to smooth-out the business cycle. It controls the money market, through the commercial banking system, which indirectly controls the goods and labor markets. However, the Fed has little or no effective control over other markets, including the housing, bond, stock, commodities, and foreign exchange markets, because it doesn't posses the tools to fine-tune the economy. Sustainable growth for the largest economy in the world is about 2.8% real growth. If the Fed can achieve and maintain 2.5% to 3% real growth, through price stability, then it has succeeded in "optimizing" the economy.

The chart below is an SPX daily chart over the past four months. SPX rallied to a four-year high two months ago, which marked the beginning of a "symmetrical triangle," which is a neutral technical pattern. This pattern will compress the SPX trading range, currently between 1,208 and 1,242, until there's a decisive breakout, on heavy volume, to upside or downside. SPX rose last week from 1,205 to 1,230, and failed to trigger a Parabolic SAR buy signal (red dots), by rising just above 1,230.

However, after SPX eventually breaks out of the symmetrical triangle pattern (most likely in October), there are major resistance levels around 1,250, i.e. a multi-year Fibonacci level, the monthly upper Bollinger Band, and recent high, and major support levels around 1,200, i.e. 200 day MA, psychological support, and recent low. The stronger resistance levels suggest that, in Oc

in 2.5% to 3% real growth, through price stability, then it has succeeded in "optimizing" the economy.

The chart below is an SPX daily chart over the past four months. SPX rallied to a four-year high two months ago, which marked the beginning of a "symmetrical triangle," which is a neutral technical pattern. This pattern will compress the SPX trading range, currently between 1,208 and 1,242, until there's a decisive breakout, on heavy volume, to upside or downside. SPX rose last week from 1,205 to 1,230, and failed to trigger a Parabolic SAR buy signal (red dots), by rising just above 1,230.

However, after SPX eventually breaks out of the symmetrical triangle pattern (most likely in October), there are major resistance levels around 1,250, i.e. a multi-year Fibonacci level, the monthly upper Bollinger Band, and recent high, and major support levels around 1,200, i.e. 200 day MA, psychological support, and recent low. The stronger resistance levels suggest that, in Oc

om 1,205 to 1,230, and failed to trigger a Parabolic SAR buy signal (red dots), by rising just above 1,230.

However, after SPX eventually breaks out of the symmetrical triangle pattern (most likely in October), there are major resistance levels around 1,250, i.e. a multi-year Fibonacci level, the monthly upper Bollinger Band, and recent high, and major support levels around 1,200, i.e. 200 day MA, psychological support, and recent low. The stronger resistance levels suggest that, in October, SPX will either trade between 1,200 and 1,250, give a false breakout, e.g. 1,180 to 1,190, which was a previous major zone, or give a correction, perhaps, closing the gaps at 1,174, 1,143, and 1,138, before moving higher.

The second chart is a weekly two year chart of OIH (oil ETF). Oil has been above $60 a barrel for about two months (which is roughly when SPX topped at 1,246). Oil may fall over $10 a barrel in October on slowing demand (since the summer driving season and worst of the hurricane season are over). However, it's uncertain if falling oil prices will be bullish for the stock market, because that may reflect slowing economic growth. The chart shows OIH held its 10-week MA, and weekly Parabolic SAR buy signal (green dots) recently. A close below the 10-week MA may eventually result in a test of the (rising) 50-week MA, which OIH has held for about two years. Perhaps, OIH puts are a safer bet than SPX puts (OIH hit an all-time high Thursday afternoon).

Economic reports next week are: Mon: ISM Index, Construction Spending, and Auto Sales, Tue: Factory Orders, Wed: ISM Services, Thu: Unemployment Claims, Fri: Nonfarm Payrolls, Hourly Earnings, Unemployment Rate, and Wholesale Inventories. Also, the weekly oil inventory report is each Wednesday, and WMT provides guidance on Thursday. Notable earnings reports next week are: Mon: CMGI (after the close), Tue: None, Wed: YUM, Thu: MAR COST, Fri: None. Earnings season starts the following week.

Cyclical factors have and will influence the U.S. economy short-term within the structual underpinnings of slowing growth. It's uncertain how much these short-term factors will influence the stock market over the next few months. However, the market held up well over the seasonally weak period of May to September. The U.S. economy may shift to a much slower growth path, from about 4% real growth from late 2002 to early 2005 to around 3% in 2005, to perhaps 2 1/2% or less in 2006.