The market rally since early June has been paritally confirmed by an ongoing uptrend in my weekly
fundamental indicator (WCFI) which turned up just after mid - Jun. I say "partially confirmed" because the SPX has made a new cyclical high but the WCFI has not as sensitive materials prices have not
kept pace with stocks. The SPX rally has been far sharper than the recovery of the WCFI. There is
nothing in the broader set of economic data to support SPX strength. I conclude there continues to be
speculation of further QE by the Fed. The WCFI points only to rather mildly positve stock market
There are folks who are paid to divine what the Fed may do with monetary policy in the near
future. I have long thought it was kind of dopey to ruminate so hard on what a room full of folks
might conclude about monetary policy. I think it is interesting that despite all the talk about easing,
including Bernanke's comments, the Fed's balance sheet has been shrinking significantly since the
end of Feb. It appears the Fed has been able to paper over a tightening of policy by continually
discussing further easing. The reality of Fed policy says "sell" not "buy", and it could well prove
positively ruinous if the Fed keeps on tightening during an era when they have been prime providers
of liquidity to the US economy. At a minimum, the Fed needs to buy up to $60 bil. of securities
before long even if it chooses not to pursue further QE or violate promises made during QE 2
concerning credit it will extend.
Note, however, that since 2008, the Fed has usually shrunk liquidity for a period before it has
moved into significant add mode.
The market is in a solid intermediate term uptrend. It is not seriously overbought but the logic of
the move since early Jun. suggests it is getting extended in the very short run.The weekly indicators
support the rise, although some key measures such as MACD kicked in rather late. SPX Weekly
Keep on eye on RSI (top panel) and watch the ADX in the bottom panel. A +DI of 30 (green)
and a -DI of 10 (red) could well signal a tradeworthy overbought.
I note also that the old SP 400 large cap industrials is up around its old all time weekly high in
the 1950 area set in 2000 at the height of the market bubble. This is a rather interesting
development. Industrial's net per share is well above where it was back in 2000 but it trades
more humbly today, sans the bubble p/e ratio. I owe you a chart on this one. Since year's end
1995 and right before the market went into bubble mode, the old SP 400 has compounded at 6.5%
per year before dividend return. Not bad for a risk asset.
- Peter Richardson
- 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 !!!