The latter half of last week gave way to the same fears from the week prior, deflation. Wednesday’s intraday low on the Dollar Index settled back to the previous downtrend line it had exploded above and its 21-day moving average right under 82. On Thursday and Friday, the Dollar rallied to a month-long high, challenging its 10-week moving average at 83.42. The rally in the Dollar was due, in part, because of the weakness in the Greek outlook. However, it was also due to an increase in the deflationary fears. The market regained its defensive posture. Utilities, Beverage, Tobacco, Food and Staples were among the top performing groups on the day. When “preservation of capital” becomes key, it is generally negative for the market. Friday’s losses were trimmed by the end of the day, led by strength in Tech. This is good news because it shows some indication that investors are only willing to take the deflationary story so far. The week before last was when the fear was high. Friday’s low may have undercut the low from last week, but it lacked conviction. Volume may still reflect summer vacations, but the fact that the NASDAQ closed positive and the Russell 2000, as an indication of the “risk trade”, closed flat. The fear simply wasn’t there on Friday. Even the VIX fell a point on the day. I expect the choppy decline to extend through September, but not turn into another panic leg to the downside. This week focuses on the Housing data. We’re not holding out much hope for supportive numbers.