On Friday, it was reported the Unemployment Rate fell to 4.7% last month. NAIRU, the Non Accelerating Inflation Rate of Unemployment, is estimated to be 5%. Consequently, the stock market fell on Friday, since it became more uncertain about monetary policy. Also, last week, Productivity growth was reported to be negative for the fourth quarter and labor costs rose sharply in January, which are also inflationary. Economic reports should continue to have greater influence on the market, until the next FOMC meeting in late March. However, next week is a light economic data week with no inflation related reports.

The first chart is an SPX daily chart that shows a MACD indicator "bearish kiss" (see circle), which preceded the selling Thursday and Friday. With few economic reports next week, SPX may be in a volatile range, perhaps driven more by oil prices. SPX closed at 1,264 Friday, below the 50-day MA. Major support levels are 1,259 (January low) and 1,246 (previous support and resistance). There are several major resistance levels between 1,270 and 1,280. However, within two months, SPX may fall to around 1,225 or around 1,200 (explained in recent articles).

The second chart is an OEX (large caps) to Russell 2000 (small caps) ratio monthly chart that indicates large institutional investors (or "the crowd") are bearish on the stock market, since institutions generally buy large cap stocks. The large cap to small cap ratio fell to a multi-decade low recently. The last time it fell below 0.80, in early 1994, SPX soon fell over 9%, had a flat and volatile year, and then began the bubble boom, in late 1994. There are many similarities and differences between the two periods. However, perhaps most importantly, the U.S. is in a structural bear market this time.

There may be opportunities to make gains on volatility within the trading ranges and within the downtrend over the next month or two. Also, quality large caps, including ETFs, e.g. SPY DIA and QQQQ, may be better long-term buys, within two months, than small caps in general. It may be a more volatile and basically flat year at best. However, the recent economic data, and the extended three-year cyclical bull market within the structural bear market, suggest either the end of the bull market or a major correction in 2006 or 2007.