Equity markets began the week on an uncertain footing. Fear of inflation and the FOMC is percolating in the background despite recent signs of cooling. Among the most significant risks to the outlook is the oil price, which broke out to a new high this week. Another risk is the CPI report, which is due out next week. The CPI is expected to show an acceleration from the previous month; the question is how much of 1? Based on the price of oil, it could be substantial.

The S&P 500 index is hovering beneath a critical resistance point. If this point is not crossed soon, the index will correct to firmer support, which could be a large movement. The best target for support is about 5% below the current action, and it may not be sufficient to hold the market. The next target is another 5% lower and may not hold the market if the FOMC strengthens its hawkish tone.