The weekly SPX chart has rolled over and I now have an intermediate term sell signal. It
took a fair while for this signal to develop because the Apr. - May blow off in the SPX
brought the market to a hyperextended position relative to the trend channel off the Nov.
'12 interim low. SPX Weekly Chart
My weekly cyclical fundamental indicator also broke down this week, signaling modest
further deterioration in the earnings outlook.
The core fundamentals, anchored by strong growth in monetary liquidity, remain
positive on balance and no sell signal is likely to be generated here until the Fed actually
turns more fully restrictive by curtailing liquidity growth and by raising short term
interest rates. No sell signal has popped up since the cyclical bull market began, but
the indicator set has not shielded us from substantial price corrections owing to
the Fed temporarily stopping the QE process.
I have been cautious on the market for a few months because it was so strongly overbought
and because the p/e ratio was too high relative to the earnings outlook in my view. The big
QE program has been the major positive for market players this year with only a small
minority expressing concern and some angst over how sluggish the economy is. The long
term relationship between strongly accommodative monetary policy and solid progress in
both the economy and business profits is well established in the US and the idea that the
economy could flounder with type of monetary environment we now see borders on
heresy. Nonetheless, with the key economic indicators just getting by, the difficulty
- 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 !!!