Stock Market -- Weekly

Fundamental
The weekly cyclical fundamental indicator is now trending lower. Its descent is far more modest
so far than what occurred over spring / summer 2010 and 2011. The SPX, which rose far more
rapidly than the WCFI early this year is now falling at a faster clip than the WCFI and it could
well be that this process may continue if the WCFI stays under pressure. The weekly correlation
continues to run around 0.6. The major weak spot in the WCFI continues to be sensitive materials
prices as players attempt to discount a global deceleration of output growth in the short run.

Fed Bank Credit and the monetary base remain under moderate downside pressure. Here, the Fed
has reduced the currency swap program with the ECB and other affected central banks from the
$100 bil. level seen in late 2011 to $26 bil. currently. That sort of decline would normally be
greeted as a bullish economic development, but players did rally the market late last year in part
because the Fed pumped more liquidity into the global economic system. Substantive evidence
of more liquidity problems for banks within the EU can be backstopped by large dollops of
liquidity by the Fed via rapid expansion of the currency swap program without inducing
US congressional ire. Worst case is that the Fed's balance sheet is set to stop contracting.

Technical
The weekly chart for the SPX portrays a downtrend. There is minor support for the SPX just
under current levels and note that the market is now moderately oversold in the short run.
Failure of the market to mount even a modest bounce this week would not be a good sign as
oversolds of this magnitude often attract more buyers. SPX -- weekly

EU Politics / Economics
There is not a doubt in my mind that Mrs. Merkel had her tootsies held to the fire this weekend
at G8. Hollande is the new guy on the block so he has to be cautious in approaching Merkel.
However, Obama / Geithner are fed up with Merkel and Obama likely was blunt in pressing
the Germans to broaden out their EU economic regimen from such full reliance on austerity.
German political / finance chiefs often blow off the US until It gets very nasty. This a national
election year here. They got very nasty.

The EU poohbahs gather mid-week to discuss the crisis on an informal basis. Merkel will need
to do more than toss out a couple of small fish if she would like to see this new run on confidence
staunched. Listen carefully.