The big questions now are how long it will take for companies to regain some earnings momentum and whether consumers will begin to save more under the fear of job losses. Friday morning's University of Michigan sentiment report threatens to show that debt-laden consumers could well send the global economy into a tailspin. Needless to say, the Chicago Purchasing Managers' data are expected to show that the manufacturing sector remains mired in a nasty recession. In a bear market, all news is seen as bad news, and the tech sector is, indeed, also in a recession.

Thursday's Tornado

A widely anticipated rate cut by the European Central Bank failed to help matters on a truly ugly Thursday. The Nasdaq 100 led the way down as it took out support at 1485 after losing 3.1%. The Dow Jones Industrial Average broke the psychologically important 10,000 level for the first time since April. The old 30-stock average has never had four consecutive triple-digit declines, but it has a chance to accomplish that ignoble feat Friday.

Worries that the U.S. economy would take a turn for the worse dragged down the dollar, which remained under pressure overnight. Consumer income rose a bit higher than expected, but spending slowed to only 0.1%. Overseas investors are becoming increasingly concerned that U.S. consumers will hunker down and drag the economy into a recession. The healthy rise in real income doesn't bode well for profit margins, as business in most sectors of the economy is sluggish at best, and more layoffs are a given. Corning (GLW:NYSE - news - commentary) and Charles Schwab (SCH:NYSE - news - commentary) were two of the latest companies to announce further headcount reductions.

While consumer sentiment might very likely begin to wane again, market sentiment has already shown signs of turning more bearish. The Chicago Board Options Exchange put/call ratio expanded to 0.94, and the Volatility Index closed above 30 for the first time since just before April's bull-trap rally. However, the QQV was up to less than 45, still a far cry from the upper-60s readings of the spring. The Amex Arms reading of 5.80 was also well below the back-to-back double-digit levels that it saw just before the early April move. Still, sentiment is getting gloomier, which is a step in the right direction in finding a meaningful bottom.

A Look at the Sectors

The Philadelphia Stock Exchange/KBW Bank Index, which had been significantly outperforming the S&P 500 since its early July lows, continued to unravel and closed right around support at 850 -- with 800 likely to be seen fairly soon. And the Philadelphia Stock Exchange Semiconductor Index bounced off support at 550, but it too looks lower, with a test of the 450 area looking likely.

Weaker-than-expected consumer expenditures weighed on the retailers, as the S&P Retail Index hit support at 850 and the 780 area now seems imminent. Tech leader Microsoft (MSFT:Nasdaq - news - commentary) broke down on reports that the European Commission is now eyeing the company's business practices. General Electric (GE:NYSE - news - commentary) continued its slide, closing at its worst level in almost five months. There's an extreme lack of leadership, with only defensive stocks doing relatively well. That trend is likely to continue as long as the tech and financial sectors falter.

Friday brings an early close in bondland, whose residents continue to rejoice in the face of the stock market's woes. Also, Federal Reserve Chairman Alan Greenspan will address the annual Kansas City Fed confab in Jackson Hole, Wyo. It's becoming increasingly clear that time, consolidation and shuttering excess capacity -- not monetary policy alone -- are required for the economy to be positioned for a healthy recovery.

There's a real risk that consumers will build savings and/or pay down debt at the expense of spending. That's a longer-term positive, but it could send economic growth into reverse. The Fed head provided the fuel to the market bubble, which put a healthy economy on the path to the perfect storm. I'm hopeful that the worst won't be seen, and that the bureaucrats and politicians won't trigger a disruptive slide in the dollar. However, the risk is real, and investors should remain patient.

Traders should also tread lightly, as shorting into a very thin and oversold pre-Labor Day session isn't very prudent either. Getting an early jump on the long weekend is the best strategy, and I'm sure many traders will bolt shortly after the data are released at 10 a.m. ET. I'll be at my post for the duration.