Stock Market -- Monthly

I have stayed away from the long side of the stock market since the spring of this year.
I have found it far easier to profitably trade oil and commodities. Based on my trading
disciplines, I have no good reason to play in the stock market presently. I am a trader
now, but if I was a longer term player I would be careful in here. This is not a garden
variety cyclical bull market and we have seen some mean quirks. The environment in
the shorter run is a dicey one on the fundamentals even holding the fiscal cliff aside.

Fundamentals
By my lights, monetary policy still remains at best wanly positive. The Fed is adding
liquidity to the system at only a modest rate and Fed Bank Credit, adjusted for inflation,
is down for the past 12 months. That is a recipe for recession unless private sector credit
driven liquidity growth is robust, which it is not. Presently, neither Fed QE or bank funding
is growing rapidly enough to have confidence the economy will not stumble.

I have a baseline case for decent economic and profits growth for 2013, but funding for the
economy needs to pick up very soon if the baseline is to work out. The Boyz in Wash. DC
are still meandering toward the fiscal cliff. How much damage They will do to the economy
is still largely an unknown, but I would note that neither side has continuation of the payroll
tax cut as an item to be maintained. If US consumers lose that cut in 2013, it will punish
real incomes and will weaken the base case I have.

Business top line sales growth has decelerated sharply since 2011 and profit margins are
under mild pressure on operating slack even though the price / cost profit margin measure I
use is holding up. Since Hurricane Sandy likely negatively affected business in Nov., we may
actually have to wait well into Jan.'13 before we can see whether the deterioration in sales
and profits momentum is likely to continue or reverse positively. This bit of due diligence
will be required regardless of the outcome of the fiscal cliff.

SPX Monthly Chart
Check out the monthly SPX  The chart shows the SPX remains in a cyclical uptrend on a
monthly basis. It is not overbought against its rising 10 month m/a, and the MACD reading
continues positive although extended. The momentum measure is positive. It has grown more
subdued recently but is still not far below overbought levels. Lastly, the stochastic measure
shows a negative violation  in price momentum which deserves attention as it could be
forshadowing a downward turn in the market.