What we needed yesterday was exceptionally good news to get us through the 1100 level on the S & P. Not only did the news fail to inspire, it took the rally out at the knees. Getting a “5” handle on the jobless claims was disheartening. The LEI up 0.1% was actually below expectations because June was revised down to -0.3%, and this is a month-over-month number. However, it was the August Philly Fed Index that was at the heart of the market’s undoing. Not only was the headline number negative, but New Orders fell deeper into the red. That doesn’t bode well for growth in the future. In addition, the drop in the Prices Received Index to -12.5 from -8.4 ignited the “deflationary” concerns again. It was this fear that started the breakdown last week. The Dollar Index reversed early losses to gain ground on the day, despite the negative economic news. This is a clear sign of a deflationary worry. The 10-year Treasury rate fell below 2.6%, indicating increased concern of the pace of the economic recovery and a flight to cash with a little yield. Not a single Dow stock was higher and not a single S & P group was higher. After the technical bounce failed at 1100, the break sets us up to undercut the recent low at 1069 and move to the next target at 1057. I still think we have further to go, but hopefully in an orderly fashion and spread out over time so that we target the “test” low in September or early October. Next week we get a lot of Housing data, and that can’t be inspiring.