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Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Friday, February 18, 2011

Stock Market Comments

My weekly fundamental coincident directional indicator remains in an uptrend started in late Aug.
2010. The indicator has lost significant momentum over the past four weeks, but is up 21.3% from
the Aug. low. The SP 500 is up 28% over the same period and has been running ahead of the
indicator over the past month or so. The correlation for the two series is running .63. The Fed
has resumed adding liquidity to the system after a several week lay off, and this has also aided
the market in recent weeks. Core fundamental indicators continue to flash an "easy money" buy
(Caution: The core indicators are not so helpful with shorter term trading).

In a 1/3/11 post on the technicals, I opined that we should see a fast, temporary sell off in the
early going of Jan. followed by a rally up to the 1350 level on the SP 500 between mid Feb. /
mid Mar. (The "500" closed on 1/3 at 1272). Well, there was no sell off of consequence in
Jan., but the market has now trended up close to the 1350 target at 1343 and is within the
the one month time window for a peak and subsequent correction. The market is overbought
on an intermediate term basis and has been for several weeks. However, the SP 500 remains
in a strong uptrend on the weekly chart and there is no clear sign that a top is at hand. My
inclination after such a strong run is to look for trend destruction rather than use the OB / OS
oscillators which are not very helpful in a strongly trending market. For now, I am staying
pat with the Jan. 3 call, which incidentally, also calls for a 7% hit to the SPX following the
interim top. I picked the mid Feb. / mid Mar. period for a peak - then-correction using my
cycle work. So, we'll see how it goes. $SPX weekly chart.

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