Sterling Weekly for the Week of September 12th, 2011

Since the previous edition of the Sterling Weekly the Dow Jones Industrial Average declined 248.13 points or approximately 2.2% to 10,992.13 The overall market sold off sharply late last week and looks to be starting this week off with another large move to the downside. The selling right now is being attributed to the European sovereign debt crisis. This is a very legitimate cause of market concern, but in my opinion it is not the sole reason for our market downturn. The other major issue effecting the market that is not currently getting as much attention as it deserves is the slowing economic growth rate.

This week has a heavy economics calendar with several key announcements being released starting with whole sale inflation in the form of the Producer Price Index (PPI) and Retail Sales on Wednesday, and inflation at the consumer level in the form of the Consumer Price Index (CPI) and jobs data on Thursday. Additionally Industrial Production and Capacity Utilization are to be released on Thursday as well. I feel that these various releases are going to give us a fairly decent look at where the U.S. economy is headed. If you notice, the expectations for most of these release is showing a continuing decline in economic activity. This is clearly indicating expectations of an economic slowdown; and if that is the case then we are probably looking at the U.S. economy slipping back into a recession later this year or sometime in early 2012.

If I am correct, and the U.S. economy slips back into recession, then I am expecting the Dow Jones Industrial Average to continue to move lower reflecting the declining U.S. economic output. I currently see downside support on the Dow Jones Industrial Average at the upper and lower end of the trading range established last summer following the Flash Crash of 2010. I see the upper end of this range at 10,605.50 and the lower end at 9,686.48.