A disappointing consumer confidence report saw stocks post their worst session in over two weeks yesterday. Both the S&P 500 (1094.60) and Nasdaq (2213.44) closed above their 20 day moving averages at 1086 and 2186 respectively. We are at a critical juncture, in that a move now back below the 20 day averages would suggest a return to the correction and a potential move lower to the 200 day moving averages. Conversely a quick recapture of the 50 day moving averages would confirm the notion of a run back to the ’09 highs. So consumer confidence falls to a ten month low yesterday, on the same day that Home Depot (HD – 30.75), Macy’s (M – 18.67), Target (TGT – 50.06) and Sears (SHLD – 93.80) all comfortably surpassed earnings expectations. The consumer may not be in a great mood, but he does continue to spend. The last two quarters have seen strong earnings gains, far above the consensus view. From a fundamental perspective we remain very bullish, but lately you are never quite sure what this schizophrenic market will focus on next. Domestic politics, sovereign debt default, $1.6 trillion deficits, over heating Chinese economy etc. So we will let the action tell us what it wants to do, and certainly a move now, below the 20 day moving averages, would turn the trend down again and put the defensive team back on the field. Bernanke will get his usual disrespectful grilling from Congress today, and from those, on both sides of the aisle, who don’t have the foggiest notion of how markets work. What a great idea, we will import securitization implosion to the world because we completely failed to regulate both the rating agencies and how risk was passed from originator to securitor; and then when the whole thing is blowing up we shall step aside and allow a forced derivative liquidation to unwind positions at ever lower prices, feeding on the negative feedback, until the entire fabric of the global economy unravels. Or alternatively we can introduce a government sponsored bid and allow a more orderly and efficient unwinding of leverage that equates more closely to expected yield to maturity valuations - not the 10 cent on the Dollar, get me out of this broken, illiquid, panic driven market that dominated the environment at the height of the crisis after Lehman. Sometimes, listening to these congressmen, you get the feeling that they would have preferred the forced liquidation trip to downtown Hooverville, but for our part, we are certainly thankful Bernanke was at the helm. It should be noted that in early ’08, as we wrote about often, Bernanke’s hands were initially tied by the free market at all cost ideologues; and that those responsible for setting the fire are now complaining to the fire department about how it was put out. Anyway the credit markets and economy have now stabilized, and Bernanke should be given some credit. The focus today is testament to how far we have come, in that the market today will be looking to anything that helps form an understanding of the when and how the Fed implements an exit strategy. Anything which sounds more hawkish near term will be ammunition for the “watch out when they take the punch bowl away” bears. Our expectation will be for Bernanke to stress how fragile the economy remains but that the seeds of the exit plan are being formulated. What Mr. Market makes of it is anyone’s guess but the 20 day averages are our line in the sand.