Heightened concerns about the economy caused both stocks and commodities to retreat somewhat last week. Investors are looking at fourth-quarter earnings reports and even good news is being shrugged off. There have been plenty of disappointments in the quarterly reports coming in which haven’t helped either. But so far the setbacks have had a limited adverse influence on the major averages lasting just a day or two, before buyers come back into the market.

The economic data, meanwhile, also continues to offer conflicting indications of where we’re headed. Manufacturing is recovering, although the recession wasn’t brought on by excessive capacity in industrial production, so we’re not inclined to read too much into this. Consumers, on the other hand, still have their hands full with a weak housing sector, high unemployment and relatively few job openings. As long as consumer confidence remains soft, it’s hard to see any rebound occurring in this important segment of the economy.

We’ve been concerned with the strong impact rising commodity prices could have on the economy. So the recent retreat in oil prices from $83 a barrel to around $78 might seem comforting, but there’s a chance the damage is already down. Traders are pushing crude prices lower in anticipation of a weaker economy to come. Keep in mind that even after this modest pullback, crude oil prices are still more than double what they were a year ago. Such increases have historically been bad for both the economy and the stock market.

Option volatility has slipped to a two-year low. While this can’t be used as a forecasting tool, it does point to a relatively high level of complacency among investors. Sentiment polls, while not a bullish as they were a week or two ago, also show very low levels of bearishness, which from a contrary standpoint isn’t all that comforting. Our market indicators are pointing to a weak period for stocks in the near term, so we’ll continue to hold a mix of long and short positions.