Friday's action looked to me to be based upon expiration-related selling, and perhaps traders getting flat going into a weekend where our government is sabre-rattlling (with an uncertain outcome). I usually watch ^VIX at times like this, and since it is at a relatively moderate level, and closed down: it looks to me that the market participants weren't all that nervous about either the dow 10k failure or the possible US military action. Seems like a lot traders are discounting the increase in bond rates as hedging ahead of the AT&T bond deal, and the expectation is for those positions to be unwound. My sense of the economy is that it is cooling off a bit, and that the recent pop in GDP won't last. Therefore, I'd expect the Fed to remain neutral. If the Fed raises rates, it may dampen the revival in Japan and Europe, so that also argues against raising rates. I think oil can stay at any price below $17.50/so per barrel, and we won't see big increases in inflation (based upon past history).
As far as predictions go: (1) another small leg up, slightly above dow 10k, (2) a leg down to 9K, (3) a leg up in late summer to maybe 11k,
and (4) a dive at the end of the year based upon Y2K fears. Basically, a picture a lot like 1899. Note, however, for the 1899 scenario to play out exactly, we'd have to see a recession begin to unfold, beginning in May, or June, and so far that appears unlikely.
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