After the first week of earnings season, I think that it's safe to say it's not going to be a cakewalk...and that's fine. The market has been looking for a place to blow off steam and if that happens against the backdrop of so-so to good news, then that is positive. I think that creates opportunities. But, it creates anxiety as well and I actually worry about that more than fundamental news. Right now people should be building a little cash (we sent out a few exit alerts today) but not panicking. There is a tinge of apathy in the air and it has been lingering all week long. Volume has been absolutely abysmal, especially on up days. These pauses are natural and mostly considered refreshing, too. Still, to make the move to 11,000 for the Dow Jones Industrial Average the big news is going to have to come through. No more rationalization.

The latest reading on consumer sentiment was a bit of a disappointment and eliminated any thought of the market fending off pre-opening malaise. Consensus was for a headline reading of 74.0, the actual number was 72.8. Current conditions improved to 81.0 from 78.0, while expectations edged lower to 67.5 from 68.9. Keep in mind that the average reading during the 2001 recession was 88.0 so people are abnormally less enthusiastic.

Speaking of sentiment, so much of how people feel about themselves and the economy revolve around employment and their abode. On that note, there is an update on the Home Affordable Modification Program. According to the folks that run "HAMP", 66,000 mortgage modifications were made permanent in December. We can place it under too little too late and too expensive. There is a new category of "permanent pending" which stands at 112,521. I hope that everyone that can afford it gets a permanent modification, but this plan is so underwhelming as to make you want to cry.

Further Economic Data

January Empire State Manufacturing

The Empire State Manufacturing Index looks to have resumed its strong growth after hitting a bit of a lull for the past couple of months. The increase in activity is being driven by a surge in new orders as well as shipments, boding well for both the present and future. Employment is also edging above zero, indicating some hiring. However, increased demand does not come without a price; input prices made an equally impressive jump to which could serve to temper bottom line profits. Input prices hit their highest level since September 2008. When asked about the future, survey participants widely expected increased activity, but also more increases in prices.

December Industrial Production

The industrial production numbers appeared good relative to a sea of recent mixed economic data points. Trends among the various components were positive, and capacity utilization edged higher.

Friday Afternoon Musings
By: Brian Sozzi, Research Analyst

* We are continuing to get positive indicators from the retail sector. However, unlike last year, companies such as Williams Sonoma (WSM), Pier One (PIR), and Bed, Bath & Beyond (BBBY) are beating on revenue. Target (TGT) is resuming its share buyback plan, enhancing the perception that its discretionary centric business has turned the corner.

* It struck me as an obvious move that Movie Gallery is planning to shut 1,000 stores, mostly branded under the "Hollywood Video" banner. The dynamics of the industry continue to change rapidly (Redbox, Netflix, downloading movies from iTunes/Blockbuster), and though I can't speak for all the locations, the Hollywood Video stores I have seen have tumbleweeds blowing through them.

* Videogame sales in December rose 4% year over year, a good conclusion to an otherwise disappointing year. Though unit sales of the leading consoles were strong in the month, I don't think it's enough to shake the negative comments from those in the industry. Gamestop (GME), Electronic Arts (ERTS), and Take-Two (TTWO) are encountering market conditions characterized by an inability to hold launch prices ($60) and attention by gamers on heavily marketed, big-name franchises.

* I think the BARE takeover by Japan's Shiseido makes perfect sense. BARE not only has highly productive stores operated by helpful associates, but the products are a leader in natural ingredient cosmetics and are sold at non-company operated stores.

* Nice rules of thumb to all the fundamental analysis diehards out there as it pertains to items that management could do to enhance shareholder value (1) increase the cash flows generated by existing investments, (2) increase the expected growth rate in earnings, (3) increase the length of the high growth period, and (4) reduce the cost of capital.