Do or Die Point

 After the Fed meeting last week the markets took a shot at trying to blow out the top because of Bernanke’s statement that he would respond and re-inflate the economy if things got tough.  The markets rallied smartly but now have to prove themselves.  Over the weekend Paul Krugman wrote a NYT magazine article about Bernanke and how he needs to accept higher inflation.  Bernanke apparently responded saying that would be crazy and the markets are feeling the effects this morning.  See the articles and response below plus a article on the coming election by Larry Summers.

What is also important is to watch the relationship between the Financial and Consumer Discretionary ETF’s.  Since late November 2011 the Financial ETF XLF has been gaining on the Consumer Discretionary ETF XLY.  In a contradition to that move, last week the XLY made a new high, If that high doesn’t hold and I don’t think it will, things will get shaky.

A Reuters opinion article over the weekend:

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