About Me

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 !!!

Thursday, March 31, 2016

SPX -- Monthly

Technical
The longer term monthly SPX chart captures the strong move to the upside since earlier in the
year, but the indicators show a negative bias for the SPX since early 2015 and in the wake of the
ending of QE 3. SPX Monthly

The sharp rollover in the MACD toward the start of 2015 compares to similar reversals in both
the years 2000 and 2007 which heralded the eventual onset of strong cyclical bear markets. But,
unlike those two prior periods, the SPX has resisted capitulation as evidenced by the more shallow
negative performance of the relative strength and price momentum indicators.

Fundamental
Since late 2014, SPX net per share has fallen from roughly $115. down to $101. through year end
2015, and this downtrend remains in force. On balance, earnings have been penalized by the
sharp drops in oil and gas prices and by the poor performance of export sales. However, the broad
economy has continued to expand, although momentum has slackened substantially. Without
evidence yet that a recession could be underway soon, investors have been reluctant to dump
stocks in a wholesale fashion. As reinforcement, players know that even a lowly 2.2% dividend
yield compares favorably to cash equivalent and even to the ten year Treasury at 1.8%. Getting
fancier, there is a 4.9% earnings yield on the SPX which tops high quality corporate bonds sitting
at 3.5%. The p/e ratio on the market exceeds 20x recent earnings. This is a generous valuation,
even allowing the modern idea that low inflation entitles players to reduce hurdle rate
expectations.

Clearly though, investors are counting on an eventual sharp recovery of earnings power which
may be sufficient to offset short rate increases the Fed may envision in its gradualist approach
to tightening monetary policy in the years ahead. The price for players to stay in the game
remains formidable.

Wednesday, March 30, 2016

Stock Market -- Outlook Through 2016

Back on 9/27/15, I made a projection for the SPX to close out 2016 around 2160. The market has
been volatile since then, with a rally off a double bottom in Jan. / Feb. in the low 1800s carrying
up to 2064 currently.  SPX Chart

Presently, the market is positive on 3 - 6 months basis, but is heavily overbought in the short run.
Moreover, the earnings outlook for the SPX has deteriorated significantly over the past six months
from the Sep. 27 post, and it is now questionable whether the 2160 target is do-able. Specifically,
SPX net per share closed out 2015 around $101., and would have to reach $125. for year end
2016 to make the 2160 target a comfortable one to hold on to. My weekly leading economic
indicators have turned up during the first quarter of this year, but economic performance to date
been sluggish enough that the $125 in eps for the end of 2016 might be significantly on the
high side. I sure as hell hope it is not, but the economy has to strengthen sharply over much of the
rest of 2016, and, the oil price needs to continue firming up to produce the kind of earnings leverage
needed for the requisite strong gain in net per share demanded by the $125. number.

The conclusion today is that the SPX at levels over 2050 is generous with earnings struggling
below the long term trend. As very much a pro growth guy, I would be delighted to be proven too
conservative, but business progress is too slow so far.

Thursday, March 24, 2016

SPX -- Daily

Tough spot here. As mentioned down in the 3/18 post on the SPX weekly chart, the market is
overbought in the short run, and wouldn't you know it, there is now a surfeit of talky talk on the
Street that the Fed may raise rates again as soon as April. There is also another rehashing of
China's attempt to pump liquidity into its economy while trying to keep the Yuan relatively stable,
which many rightfully think cannot be accomplished together over the longer run. These concerns
have helped the dollar come up some from support, and have led to profit taking in oil, gold
and stocks.  SPX Daily

There continues to be no credible traditional case for the Fed to raise short rates, and as for China,
most players probably realize already that if the country wants to continue with an easy money
policy It will probably have to let the currency weaken from time to time just as it will have to
take the foot off the monetary accelerator from time to time.

The market is in a tough spot because the SPX is just starting to turn positive on an intermediate
term basis as traders cope with the short term overbought. With fresh and important economic
data on the US over a week away, it will be interesting to see how hard traders bear down down
on the present short term overbought, especially now that we are down to the 'Sweet Sixteen'.
Now, there's a welcome distraction.

Friday, March 18, 2016

SPX -- Weekly

Fundamentals
The SPX continues its recovery from a very deep oversold condition earlier in the year. The economy
and economic indicators have improved modestly from late 2015, and traders like perceived benefits
to US business from the weakening US dollar / stronger oil price combo underway. The longer run
outlook for the US trade position is improving, but the dollar went to a strong overbought and likely
belongs about 7% lower from current levels. Oil is in the midst of a healthy seasonal rally which
helps the outlook for the petro sector bottom line, although a sterner test of the rally may be ahead
come Apr. / May this year. The Fed is currently in retreat from the tight money talk of late 2015.

SPX net per share is a depressed $101. annual through the end of 2015, so the market is trading at
a lofty 20.3x latest 12 mo. net. Moreover, my proxy for business sales is up a scant 0.5% yr/yr
through Feb. and profit margin continues under pressure. With business remaining punk, SPX net
per share needs to do far better than currently to keep interest up.

Technical
With the SPX rally extending strongly into the current current month, the market is clearly over -
bought in the short term, but not so for the intermediate term. SPX Weekly

The weekly chart gives a mixed reading. The key indicators are in short run up trends and the
 SPX has moved up through the 13 and 40 wk. m/a's. However, the 40wk. m/a is still trending
down and the longer view of MACD and the 52 wk. ROC are still trending lower as well. Just
as the outlook for business sales and profits is not out of the woods yet, neither is the longer
run view of the market. But, at least there is some promise now as opposed to late last year
when 'It ain't over 'til its over' had to suffice.

Wednesday, March 16, 2016

SPX -- Daily

The rally in the SPX that started back in Feb. remains intact. Since the end of the huge QE program
by the Fed in late 2014, the market  has been able to achieve only the slightest positive momentum
through a volatile period, and market players with a bent for long positions have had to be content
sucking it up and jumping into the occasional sharp rallies from deep oversold positions. I have not
minded that in the least, but it has been a frustrating and  scary period for investors who feasted
on the gorgeous run up over late 2011 - late 2014.

the SPX is moderately overbought on a shorter term price momentum basis and confirming indicators
such as RSI and MACD remain in positive up trends although both are moving into extended territory. SPX Daily http://stockcharts.com/h-sc/ui?s=%24SPX&p=D&yr=3&mn=0&dy=0&id=p30474770253

The longer term trend, as represented on the chart by the 200 day m/a, remains tilted downward after a hitting a peak in Aug. last year. The rallies in the market have been getting shorter in duration since late 2014, and the sell offs have been very much sharper.  Still, with low interest rates and inflation coupled with an economy that is muddling acutely along,  there have been those bright spots that hearten traders and crush the shorts.

My capital resource utilization measure has the US economy running flat out with a full head of
steam in the 95 - 100 range. Even though we are in year seven of the current cyclical expansion,
the CRU remains a humble 82 with ample liquidity in the system.


Monetary Policy

In classical terms, the case for raising short term interest rates just is not there. Economic momentum
although positive, is running very low and US capacity to deliver goods and services is growing at a
faster rate than output. Even though business short term credit demand is increasing at a fairly strong
rate, the banking system is continuing to add to holdings of liquid assets, and there are as yet no
visible strains on banking liquidity that are typical of an economy that is starting to heat up. True
enough, inflation ex. the volatile fuels and foods sectors, has been accelerating mildly, but the full
CPI still only moved up to 1% yr/yr through Feb. '16. As the deflationary pressures from the fuels
sector subsides during the year, inflation may eventually rise toward the Fed's 'red line' of 2%, but
without sharper growth of final demand, the Fed's case for 'normalizing' short term interest rates
will remain marginal at best.

Wednesday, March 09, 2016

Oil Price Note

Readers familiar with this blog know I refrained from a long position in the oil sector until we got
close to the traditional annual oil price bottom around the end of Feb. True to form this time out,
oil has been in rally mode since mid - Feb. The price has entered an intermediate term positive
reversal and has taken out nearly three month resistance of $35. There are nice up trends underway
in RSI and MACD and oil has taken out its 50 day  m/a without stress. The RSI measure is tilting
up to an overbought reading for the first time since last May. From a seasonal perspective, oil has a
decent shot at challenging its 200 day m/a over the next 30 days. WTIC Oil


The oil price tends to hit a plateau / corrective period from mid - Apr. through Jul. Aggressive players
often have to decide as spring takes hold whether to keep long positions through this corrective
period to capture more seasonal strength as the year wears on or take profits and wait for a decent
re-entry period as the summer progresses.

Note as well that when oil failed to take out its 200 day m/a last year it was a bad omen. So even
if oil progresses further, traders will need to pay full attention to whether oil is again rebuffed at
the '200'.

Tuesday, March 08, 2016

Global Economic Supply / Demand

Global economic demand growth hit an interim peak of just under 4% yr/yr over Half 1 '14. Since
then there has been steady but gradual deceleration of growth momentum of production to just a
touch under 2% in early 2016. With continuing substantial production overcapacity, global
inflation pressure has steadily subsided to a nominal level. There has been a recent, mild bounce
in pricing, as the painful process of mothballing excess capacity is underway. Among nations, net
producers of commodities have been particularly hard hit. Commodity Price Index

The broad CRB index recently hit a multi year low under 160, breaking long term support in the
180 - 200 area. The macro model I long ago developed to determine fair value (cover cost + earn
sufficient profit to warrant reinvestment of earnings) has the CRB as fairly valued in 2016 at the
330 level. With the commodities market so depressed, a pick up of growth in final demand  will
trigger off a round of inventory restocking that would send the commodities market sharply higher
in aggregate price. Barring a sharp rebound in demand, a number of commodities producers will
continue the difficult process of shutting down production facilities via merger or individual
actions. The recent upturn in the CRB largely reflects trader reaction to forthcoming production
constraints.

The US has bucked the trend of very slow global growth recently as commercial and industrial
new orders flows have gained in pace from low levels seen back in late autumn, 2015. But even
here, progress has been modest.

This is the seventh year of global economic expansion since the deep worldwide recession ended
in 2009. It has been a mild expansion, with global production about 30% above the level of a
decade ago. Expansive monetary policy by the world's major central banks has kept the globe
out of economic depression and the wolf of deflation away from the door. Policy has fattened
up asset values and lead to increased lending, but real output growth has disappointed given the
powerful liquidity flows we have seen. There is a broad range of fiscal stimulus and development
programs yet to be tried, but little appetite by governments to open up these options. Thus, for
now we are left with a world very much more reliant on its own internal private sector potential.

Sunday, March 06, 2016

Gold -- Weekly

I chided the gold bulls just a short while back for undisciplined pursuit of the metal in the market,
but traders are jumping into very distressed resource futures and securities as well as selected
markets all around. So, gold has been no exception. There was a nice trade in gold late last
autumn when it was among the unwanted, and in correct anticipation of the seasonal rise in the
oil price, traders are extending the rally. The towering steeple structure of the gold bugs cathedral
collapsed a few years ago, and most of the stained glass windows have been shattered, but the
bugs are leading the charge inside anyway. Gold fundamentals are edging positive in the short run,
so gold's advance is not an apparent travesty.

Here is the weekly chart. Gold  The 13 wk. m/a has moved above the 40 wk. m/a with both in
up trends. The market is on its way to an overbought for the  intermediate term RSI (bottom panel)
so traders are going to be monitoring the RSI trend as well as the now rising oil price, which has
really caught their fancy. As a trader, I would prefer to re-enter a position in gold when the RSI
is back down around 30. Note as well that there is congestion in the 1300 - 1400 area.

Saturday, March 05, 2016

Thoughts On 2016 National Election #1

Old school Irish mothers are fond of saying "Self praise stinks". And so, having been raised by
by Mae McCoy, I am surprised at how long The Donald (Trump) has lasted as a presidential
candidate. Not only does he grate on many folks, he commits an even bigger sin: He is a crashing
bore. But he has captured the interest of lean living white folks, the latest collateral damage of
modern economic times in the US. Blacks have been badly treated throughout our history. Eleven -
twelve million illegal Hispanic immigrants now live here in virtual serfdom. The trade union
movement was busted starting in the 1980s. And now, as US companies  keep moving operations
offshore and open trade agreements flood our markets with imports, the final insult to the
heretofore safe white middle class has come: The rewards of enterprise flow primarily to capital
and not to labor,  thus leaving millions of whites with stagnant or falling real wages and much
diminished mobility. The GOP elites have pissed all over their shoes for years, and The Donald
has scooped them up. As this peasant class both grows and seethes, they may represent a new
and potent political force. A white democrat might have appealed to them at one time, but not
a super bright man of color. They have rejected him. The GOP stands for the wealthy as it has
for over 100 years and does not know what to do with them. Our new peasant class will grow
further and will be joined by the elderly if the GOP gets its way. Watch to see how this potent
this force might become. And note too, the popularity of Bernie Sanders with the young folks.
Fascinating stuff.

Tuesday, March 01, 2016

SPX -- Daily

The new daily chart shows a lower trading range of SPX 1825 (support) and 2000 (pivot / resistance)
SPX Daily. The SPX 2000 level was chosen as the top of the range to capture the gateway to higher
prices. The market is moderately overbought on short term momentum against the 25 day m/a and
RSI is also getting elevated following the break of its downtrend. Should the market strengthen
further in the short run, traders will be watching the 2000 level with extra care.

Stocks have been rising following news of evidence the economy has been firming up rather than
discounting the news in advance. Despite the fast run up in the SPX recently, players are still wary
of the environment and have needed encouragement from the fundamentals. As suspected, the
start of a seasonal rise in the oil price is also helping out the market, reflecting good news for
profits net, net.