Last week's wild trading defied any simple explanation. That always sets the table for pundit pontification!

We are still a week away from earnings season. Bond, stock and commodity prices are moving in different directions. I expect this divergence to be a focus of attention, with many asking: Is the Bond Market Sending a Message about the economy?

Prior Theme Recap

In last week's WTWA I predicted that there would be a focus on alleged January effects. That was very accurate, especially after the first two days of the week included a major decline. As always, Doug Short's weekly snapshot tells the story at a glance. If you snoozed through the week, you missed it!

Here were the competing theories:

I hope that my readers will be skeptical about two days of trading predicting the next 250. There is certainly no reason to pick two days rather than five. These are the stories attracting big ratings, despite making little sense.

What you should do, of course, is look at the independent and dependent variable separately, using January to predict the next eleven months. You might also ask whether the same effect is seen in any other months. CXO Advisory reported this research last year. January explains only about 5% of the variance for the rest of the year, with the rest left to randomness or other factors. January is no better than other months. Etc. This kind of research deserves more publicity. This chart (one of many good ones in the article) shows that whatever the very modest effect, it ended over 30 years ago.

Will we hear the same story next year? Probably. These stories never seem to die.

Feel free to join in my exercise in thinking about the upcoming theme. We would all like to know the direction of the market in advance. Good luck with that! Second best is planning what to look for and how to react. That is the purpose of considering possible themes for the week ahead.

This Week's Theme

While there is plenty of news on tap this week, we still have a week before the start of earnings season. It is a time that defies easy explanation, with wild gyrations in stocks and divergent moves in bonds and commodities.

I expect a focus on bonds, with the question:

Is the Bond Market Sending a Message about the Economy?

There are two basic viewpoints:

As always, I have some ideas about last week's trading as well as next week's question. More on that in today's conclusion. But first, let us do our regular update of the last week's news and data. Readers, especially those new to this series, will benefit from reading thebackground information.

Last Week's Data

Each week I break down events into good and bad. Often there is “ugly” and on rare occasion something really good. My working definition of “good” has two components:

The Good

There was a normal news week, with a positive tilt.