Stock Market -- Monthly

The cyclical bull market running from 3/09 continues to roll on. The SPX monthly chart
(linked to below) also shows the SPX is getting overbought against its 9 mo. m/a as well
as on a monthly stochastic measure. Market momentum has been decelerating as the advance
has moved along, with this development being typical of a cyclical upmove that is no longer
fresh. The market is extended on the price band up from mid-2011, but the momentum
measure is well under levels that would signify a blow-off top. SPX Monthly

I do not ascribe great significance to the fact that the SPX has been closing in on its previous
all-time peak. My argument for several years has been that the US economy has the capital
resources in place to see the economy advance for another few years. It has been slow
going, and particularly frustrating since business has opted to continue to mal-distribute
income generated. The Fed's periodic experiments to curtail QE have slowed progress and
now fiscal policy seems to be set on putting further hurdles in place with new austerity
measures. Economic risk is higher than normal now, but no recession is currently indicated.

the Fed has a strong QE program underway since this autumn and US economic history clearly
suggests that economic expansion, now very tepid, should re-accelerate soon, thus paving the
way for further advances in the SPX as the year wears on. I am presently not comfortable that
current QE has not already spirited the broad economy and would like to see more positive data
soon. I have argued my case for an uninteresting market based solely on QE without positive
economic follow-through.

Investor confidence, as measured by a recently expanding p/e ratio, has been on the rise based
on QE, but remains significantly below a level that would reflect solid but hardly exuberant
confidence. With QE and room for the economy to grow without serious inflation pressure,
the SPX should be trading in a range 1650 - 1700 with $100 per share earning power in the
can.