Stock Mkt. Fundamentals -- Directional

My primary indicators have returned to 100% positive. The basic money supply indicators
have experienced a re-acceleration of growth since autumn, 2010 on the heels of Fed
implementation of its $600 bil. quantitative easing program and intermediate grade bond prices
have ralled in Jan. For now, the Fed seems reasonably determined to complete its easing program,
with 6/30/11 set as the wind-up date. It is very likely that by Apr. /May, market players and
economists will be speculating freely about Fed. intent beyond 6/30. In the present though,
we have a classic "easy money" environment where the longs are betting with the Fed.

The economy has been growing more rapidly than has my broad credit driven measure of system
liquidity, which normally creates at least a headwind for the market. However, I would note that
retail money funds were drawn down heavily over Half '2 2010. Much of this money may have
gone into retail sales, but some of it may well have found itself into the market. I also note
that institutional money market funds, which rose over the 3rd quarter of 2010 when the market
struggled, were drawn down sharply in Q4. This development helped the market rally
as did a rotation from Treasuries into lesser quality corporates and stocks. So, there were some
broader liquidity and rotational factors which helped the market rally strongly over the latter
part of the year, but continuation of these trends cannot simply be counted on going forward.

I do expect earnings growth momentum to slow markedly relative to the longer term trend
line by late 2011, but not by enough to significantly bother market players who are usually
willing to stay positive on the market so long as earnings do not look likely to trend negative (I
often do not share investor generosity on this score).

My weekly fundamentals coincident market indicator has been rising strongly since late Aug. '10,
right along with the market. This indicator jumped very strongly in Dec. and has lost positive
momentum so far in Jan., but the main trend continues up.  (Note: this indicator is not so useful
for shorter term timing as data availability only becomes available toward the end of each
trading week. But it has its uses in the shorter run. For example, the indicator was unusually
strong in Dec. '10. Loss of positive thrust so far in Jan. could make some players more wary in
the near term.)