Prices have had a good run and the up-trend should continue for several more months. The number of New Highs is expanding and the number of New Lows is contracting. Both support a positive outlook. However, conditions are ripe for a correction out of the S&P's month long channel, as defined by the 8-day moving average. A surge in positive sentiment over Facebook's IPO this week might mitigate any immediate negativity. In any case, the correction should represent a new buying opportunity.

GROSS DOMESTIC PRODUCT (GDP)

GDP includes the sum of consumer spending, government spending, business investment capital and exports less imports, or GDP = C + G + I + Net Exports. Simple mathematics, but oh so important! To stay even, if one factor decreases, another must increase. The Commerce Department reported on Friday that GDP grew 2.8% in the final fourth quarter of 2011. Nirvana would be values greater than 5%.

We had a massive stimulus package signed into law on 02/09, done in order to reverse any further economic deterioration, per the GDP equation. It was an offshoot of Keynesian macroeconomic theory, which argues that, during recessions, the government should offset the decrease in private spending with an increase in public spending.

It seems to have worked and GDP grew to 5% from - 6.8 in just one year, but the stimulus was not a permanent institution. As it faded and any new stimulus was limited, we nearly entered a new recession last year. The Fed stepped into the breech and applied a new form of monetary stimulus, QE1, QE2 and dollar accessibility for Europe's beleaguered banks.

Over the last two years, the private sector has grown at a rate of 3.2%, while government has contracted 1.4%, resulting in 2.3% economic growth. In normal times, the government would also be growing and 5% expansion would be achievable. America's conundrum (and the world's) is too much debt and this limits any Keynesian expansion, no matter how compelling. In 1932, debts had been expunged and FDR had a free hand.

Still, with Fed support, we have been successful in muddling through. One area that has helped greatly is exports; now greater than at anytime in 80 years. The bulk of the growth has been from the old economy: petroleum, metals, chemicals and farm goods. Not surprising though in this electronic age - Intel has led the surge. If only the debt crisis in Europe doesn't prove to be our undoing, we should continue to grow modestly.

OTHER REPORTS

The Conference Board said its Leading Economic Index increased by 0.4% in December.

The Consumer Sentiment Index for January was upwardly revised to a reading of 75.0.

The Pending Home Sales index fell 3.5% to a reading of 96.6 in December.

Sales of new single-family homes dipped 2.2% to an annual rate of 307,000 for the month.

Jobless claims rose to 377,000 from the previous week's revised figure of 356,000.