Stock Market -- Weekly

Fundamentals
My weekly cyclical fundamental indicator (WCFI) finished up 2012 on a strong note.
Through the first trading week in in Jan. 2013, the WCFI rose 10.8% from year end 2012.
This compares to a + 16.5% up move for the SPX. Part of the difference reflects only a
6.2% rise for the sensitive materials price component, but the bulk of the differential
stems from the QE programs from the Fed (which are not in the WCFI). The stock market
has responded very positively to the major QE effort, despite the volatility that surrounded
the fiscal cliff saga around year's end. The Fed is ambivalent about how long to push on
with the large QE now in place and has attached an inflation "string" to it, but through
history, the market has rarely failed to respond positively to sizable quantitative easing
and very low short term interest rates. The stock market is discounting an eventual
significant move up in profits for 2013 and is running well ahead of developments for
sales and earnings at this point.

Technicals
This week I take a different cut. I like to watch the movement of a broad, unweighted stock
index and I prefer the Value Line Arithmetic Index ($VLE), which features over 1700 stocks. In
tandem, I keep an eye on the cumulative NYSE advance / decline line. The NYSE  A/D is
basically a very broad mid - and smaller sized capitalization measure.

The $VLE has just surged to a new all time high. It is in a strong uptrend off the 2011 interim
low, but is now moderately overbought against its 40 wk. m/a and is approaching overbought
on shorter term measures as well. $VLE Chart:  http://stockcharts.com/h-sc/ui?s=$VLE&p=W&yr=3&mn=0&dy=0&id=p55102470047 It could be niggling on my part, but
the MACD in the lower panel needs to establish a much smoother trend up in the weeks ahead
or else it would be fair to suspect the market's trend.

The bottom panel of the chart shows the strength of $VLE relative to the SP 500. Notice the
positive reversal in relative strength for the $VLE as 2012 worked to an end. This shows
action by investors to position themselves more aggressively to capitalize on the assumed
benefits to the economy and profits from QE and also is an expression of conviction that
the dollar will not rise sharply to allow foreign firms to penetrate smaller US growth sectors.

The next chart shows the cumulative weekly NYSE A/D line. It reveals that the NYSE A/D
has also reached a new all time high as well and that it is getting overbought against its
6 wk. m/a. Note too, that it is getting elevated on RSI and is also a little shaky on its MACD.
NYSE A/D Chart

The market is clearly up on price and breadth trends. The shaky MACDs may merely reflect
interference from the volatility caused by the fiscal cliff brouhaha. But as most of you know,
there is more to come on the fiscal front as there will be a request to raise the debt ceiling
(Feb.) and Obama and the Congress will have to address the mandated spending cuts in
Mar. The talk in the capitol is already getting nasty and threatening. More markets volatility
may lie ahead. As well, most US workers are going to see take home pay recede by up to
2% as the increase in the payroll tax takes hold. There could be a jolt here, too.