About Me

Retired chief investment officer and former NYSE firm partner with 40 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 !!!

Sunday, May 21, 2017

SPX -- Weekly

My e-inbox is stuffed this week with indications of growing pundit / strategist impatience. This
is the first such suggestion in 2017, although it should not be a surprise given the continuing
flat market and a volatile week. I am not receiving  much bearish commentary, but rather
intimations that its high time for more upside or, maybe it will be wise to think about reducing

My forward looking cyclical economic indicators have continued on the flat side since the end
of January, and, like the market, have not evidenced much in the way of volatility. The Congress
has taken up tax reform with emphasis on revenue take neutrality, and it is possible traders are
starting to miss Trump team leadership on a more stimulative set of guidelines with a clear focus
on significant deficit financing.

The weekly SPX chart shows the market is still working off a serious intermediate term over-
bought situation including now double top resistance at 2400. The market's range over the past
few months has been tight and there has not been the sort of sustained corrective action to
provoke thinking that a fresh buying opportunity might be at hand.  Similarly, there has not been
a test of the 40 wk. m/a since last autumn. I do not have a strong view on market direction near
term, but my discipline says not to trade extended overbought situations on the long side. The
chart does suggest there is upside through 2400 but maybe not very much.  SPX Weekly

Friday, May 19, 2017

SPX -- Daily

I plan to do a weekly update before the end of the weekend, so this piece is intended to focus
on the short term as revealed by the SPX Daily

There was a sharp and overdue dip this week as the Trump farrago captured The Street's focus
for a day, but news that the Congress is taking up a large tax reform program led to some cheer as
the week ended. The price gap alluded to a couple of weeks ago with the announcement of the
Trump tax proposal was closed by the sharp sell off on Wed. The partial rebound toward week's
end closed half the distance after the big downer on Wed. The market is still laboring under the
SPX double top at 2400, which marks clear short term resistance. There is short term support for
the SPX a little above the 2320 level.

The MACD looks a little nasty, but the SPX is now in relatively neutral territory.

Tuesday, May 16, 2017

Gold Price

In early 2016, economic fortune turned positive for the gold price in the form of faster economic
growth and accelerating inflation. It prompted a dramatic cyclical run for gold off its low in the
$1050 oz. area up to an unsustainable peak of $1375 in Aug. of last year when speculative froth
in the futures market bubbled up to dramatic new highs.  As expected then, the gold price corrected
to a deeper than expected low near $1125 late last year. That translated into a 7% price gain for the
2016, which seems appropriate to me, after all the dust settled. My shorter run economic and
inflation indicators have both lost substantial positive momentum so far this year, so the typically
volatile rally in gold in 2017 has been too strong on the inflation front in my view. Now there are
a bevy of potential geopolitical risk factors still ahead for 2017 ranging from North Korea on to
elections in Iran through to the Brexit saga, more elections in Europe and unsettled global
diplomacy reflecting The Donald in his role as wrecking ball of the old world order. On top,
with the US expected to be less dominant in the growth of the world economy this year, the
US dollar has been weakening so far in 2017 (which is fine by me).  So, gold has been getting
some support from both geopolitical uncertainty and a weaker USD, which has lost some haven

With a correction underway in the USD, the gold price has some traditional appeal even though the
recent rally in anticipation of trouble after the French election has not materialized.  Gold Daily 

Friday, May 12, 2017

SPX -- Weekly

Measured y/y, business sales and profits remain quite strong. Forward looking economic indicators
still suggest growth deceleration out ahead, but even this case is not closed yet. The future inflation
pressure gauge has weakened after a strong period of recovery starting in early 2016. Inflation may
also be set to moderate out ahead. Thus, the faster economic growth / inflation thesis which was
the bedrock for the strong up leg in the stock market since early 2016 hasn't yet collapsed, but has
dissipated considerably since earlier in the year. The market rally over the past couple of weeks
primarily reflects Trump talk of 'massive' tax cuts later in the year and hopes that he will keep
the infrastructure and offshore and dollar repatriation programs alive. If you are in it to win it
with The Donald, simply be prepared to continue to wade through the Trumpian horse shit that
will flow steadily our way.

Basically, the market remains overbought for the intermediate term with mild corrective action
quickly remediated in recent weeks. The market has now formed a 'secondary top'. This may
merely be incidental, but it could also be the prelude to something nastier as happened in mid-
2015. The SPX is also trading at the top of its 20 week Keltner channel, a development that
commands extra attention.  SPX Weekly

Trump And The Russians
There is plenty of smoke here, but how big the fire is is far from clear. In making FBI Director
Comey walk the plank this week, he has alienated the FBI to its core. Regardless of how the
investigation proceeds, figure that at some point in his tenure, the boys with the short hair cuts
and dark suits will take a large bite out of Trump's ass. Even a Trump built dyke will spring
serious leaks if it comes to that. 

Monday, May 08, 2017

Oil Price

Wicked isn't it? Confidence built strongly over the course of last year that the oil price had made a
decisive bear market low just under $27 bl. in Feb. 16. What followed was a powerful seasonal
rally into Oct. There was seasonal weakness afterward, but since Nov. of last year the market's
trading pattern has been somewhat off - kilter seasonally as debate has focused on whether
OPEC / Russia production cuts would allow rising demand to balance off supply such that, by
later this year, we could see crude rise to $60. By early 2017, speculative long positions in the
oil futures market had reached record levels. That intense speculation plus already dramatic yr/yr
% price momentum produced a dramatic overbought in the market as I suggested in posts earlier
this year. I argued that there would be at least a price "hiccup", and we have seen such over the
past couple of months after the normal or seasonal round of price strength over the Feb. - Apr.
failed to pan out. WTIC Daily

Indicators reveal a marked improvement in global economic demand over the past year. However,
the rate of progress may have peaked, at least temporarily. On the supply side of the oil equation,
US output recovery has exceeded earlier expectations, with the  NA rig count having more than
doubled since last May and capacity utilization at the well head now having risen to over 93%.
Even Libyan crude output is topping expectations. So, the story of supply / demand balance this
year is less sturdy now than it was. Moreover, speculative long positions in the oil future have
been sharply reduced, but are now in a gray area where further liquidation cannot be discounted
even if the pace of redress slackens. Seasonals have not been that important, but it should be noted
that Jun. ahead is normally a weak month.

The upshot here is the game of guessing on the direction of the oil price is now more tenuous
 in the near term. The technicals here are mixed. The oil price is in a volatile short term down-
trend and is behaving poorly against its 200 day m/a for the first time in quite a while. On
the plus side, the market is oversold and even though timing measured in days is not sure,
there is a rally out there before too long.

Saturday, May 06, 2017

The VIX Volatilty Index

I make limited use of the VIX index. However, when the weekly index falls into the 10 -12 range,
there is a clear suggestion to expect volatility in the stock market to rise out ahead. This means
that it would be normal to expect some corrective action, but it certainly does not imply that it
will be major. Even so, the current nearly historically low VIX does suggest that when the market
moves into a more volatile period, it can certainly last a while and be a little spooky.  VIX Weekly

Thursday, April 27, 2017

SPX -- Monthly

The SPX remains in a cyclical bull market and is experiencing its third leg up since the bottom in
early 2009. The third leg commenced in Feb. '16, and was confirmed during the past year by a
positive turn in the very important monthly MACD measure.  SPX Monthly

It is very difficult to judge how far and how high this leg may carry. There is sufficient capital
slack in the US economy to carry the market well into 2019 even though the labor market is getting
tighter. Also, there are plans to be debated in the Congress to cut taxes, repatriate foreign retained
earnings and develop a sizable infrastructure program. It seems at this point that the Trump admin.
would prefer to fund most of the contemplated tax cuts and increased spending on infrastructure
projects via substantially larger Treasury and agency funding. The size and funding of these
programs must pass muster in a Congress which richly embodies the deep political, economic and
social divisions in the US.

Since the first powerful surge of economic recovery which completed over 2010 - 2011, the pro-
gression of economic expansion has been slow (real growth) and low (modest inflation). The Fed
has choked off growth of basic liquidity since the end of 2014, and is now following a policy of
gradually raising short term interest rates. Headwinds have replaced powerful tailwinds on the
monetary front and the market has moved from a low risk / high return environment to one of
rising cyclical risk and less assured returns.

With both labor force and productivity growth running low, future business sales and earnings
growth potential are running well below long range experience, the stock market is reliant on
a continuation of low inflation and interest rates to remain competitive in the capital markets.

The stock market is once again running above the upper band of its price range starting from
the end of WW 2.These periods can extend for a few years, but downside price risk is rather
high even though a bear phase may not now be imminent.

Investors are so keenly interested in the Trump admin.'s stimulus programs because they forsee
accelerated economic and earnings growth coupled with probable moderate Fed tightening and
faster but not skyrocketing inflation that would combine to give them a shot at earning excess
returns for a few years. Absence of such programs seems to beckon dreary and risky times as
well as lousy bonuses for investment managers and rising career risk in a business that is not
short of capacity.

So, there could be some market downside if the Congress ties these stimulus outlines up in knots
and confounds all the equity investment mangers who are hoping for a new lease on life.

Tuesday, April 25, 2017

SPX -- Starry Night In Harrisburg

I'll get to the Harrisburg, PA bit in a minute, after some preamble. Back on Apr.14 (scroll down), I
suggested the SPX was nearing a flashpoint. The indicators were negative, but the market was
fast approaching a short term oversold. It hit a low point, and bounced a little last week, before
catching fire for the first two trading days this week.  Confidence was helped over the weekend
when part one of the French election went as expected, but remember as well that The Donald
announced last week that an outline of the tax cut / reform program was to be announced this week.
He "kited" the market yesterday with the announcement that a large cut in the corporate tax rate
could well be proposed, and the Treas. Sec'y added fuel to the fire by hinting that such a cut would
be financed by borrowing, with the resultant stronger growth to "pay for" the cut. This brings us
to the starry night in Harrisburg. In his first 100 days in office, Trump has produced a thin slice or
two above jack shit. This Saturday he holds a rally in Harrisburg, and hopes to cover very anemic
performance by touting his tax plan and bragging about how well the market has done since the
election. Maybe he will pull it off, maybe not.

As he tries to pull the market into his world, the short term economic indicators continue to suggest
that a flattish market is the best prospect. The rest of the week will be busy in DC. The boys will
need to sign off on keeping the gov. open; there will be more from Trump on tax cuts; and there will
be feedback on the tax plan and the wealth care er, health care plan from the Congress. As well, with
the nuclear submarine USS Michigan docking in South Korea to complement the USS Vinson
battle group now (presumably) in position in the Sea of Japan, it will be young Mr. Kim's chance
to pop off.

Attached is the SPX Daily chart. What is that old rule that price gaps are eventually closed?

Saturday, April 15, 2017

SPX -- Weekly

The stock market has been in a strong up leg since Feb. '16,  a move that brought it to a new all-time
high as Mar. of this year began. The weekly cyclical economic indicators turned positive around the
Feb. last year and powerful momentum for this indicator set appears to have provided the requisite
underpinning for the market's advance. The indicators are forward looking and it may be important
to note that this set has now been flat since Jan. of this year, suggesting economic momentum may
slow out ahead. In turn, the SPX, which hit an interim peak at the outset of Mar., has been in
moderate corrective mode since. The market hardly moves in lockstep with the indicators, but the
suggestion here is that, barring an upturn of the indicators, the SPX should continue on the flat
side. As a secondary factor at this point, inflation pressures have recently eased, and this may keep
the Fed from more aggressive tightening action over the near term. A less aggressive Fed is a
positive for stocks, but since the progress of the SPX over the past year has been fueled by expec-
tations of strengthening progress of business sales and earnings, there could be an adjustment
process for stocks to complete, especially since the development of new fiscal measures to
stimulate economic growth may be getting pushed further out in time as the Trump team figures
out how to work better with the Congress.

The SPX has been working off a substantial intermediate term overbought. There is nothing in
the weekly chart to suggest this process is about to end. Adjustment is already well underway
with the RSI and oscillator measures, but the important MACD measure has just turned negative.
Moreover, the SPX is still at a 4.6% premium to its 40 wk. m/a. The premium is contracting,
but it is still significant. There is no inevitable negative conclusion, but do not ignore the
evidence.  SPX Weekly

Friday, April 14, 2017

SPX Daily -- Crossroads Ahead

The SPX has been working off an intermediate term overbought. In the meantime, the daily chart
shows that corrective action is tilting toward a flashpoint.  SPX Daily

Based on closing prices, the SPX has been in a downtrend since the end of Feb. Notably, the 25
day m/a has rolled over and the SPX has failed to rally above it. The market is in a mild
oversold condition, and both RSI and MACD have declined near important testing points with the
30 day ROC now in mildly negative territory. Corrective action has been moderate so far,
but the shorter term indicators show the worst readings since the recent market upturn began in

I have been wondering for weeks whether the Nov. rally would follow the other two which took
place since the market turned up back in 2/16, and ultimately finish up with a test of the 200 day
m/a. That would be compelling symmetry, but there is hardly enough logic in the market to make
it happen. Even so, it's heads up time from a technical point of view.

We roll into Easter weekend with tensions again running high on and around the Korean peninsula.
There is The Donald to contend with and new leadership in Seoul. The odds are that the US
command is telling the President to cool his jets and wait to see if his new best friend, President Xi
of China, has any magic to work that gets us all off the hook. Market players do not seem very
concerned, but always keep in mind that this particular area of the world is strewn with mis-
calculation through history.

I plan to post again on the weekly SPX chart by Sunday evening.

Friday, April 07, 2017

SPX Weekly -- Quickie

The SPX was knocked off the rally trend from Nov. and now has turned weak on the MACD
indicator.  SPX Weekly

The market has been working off a substantial intermediate term overbought and although there
has been some downward pressure in recent weeks, there has been no decisive break yet to shift
market player attitudes away from a bullish posture. As outlined in the 3/26 SPX Weekly (scroll
down), fundamentals suggest continuation of a flat market.

Gold Quickie

Tensions between the US and Russia helped the gold price this past week. Moreover, with Rex
Tillerson, US Sec'y of State and a Putin pal, scheduled to meet with Russian Bigs next Tues. in
Moscow, there could be additional  US / Russia diplomatic fallout ahead. Because the USD also
rallied this past week, the gold price might require more tensions to stay afloat in the short run.
The indecision in the market is captured by the fact that gold closed out the week just around its
40 wk m/a.  Gold Weekly

Sunday, April 02, 2017

Gold (GLD) -- Weekly

The pace of global economic recovery since the Great Recession ended in 2009 has been slow, with
cyclical inflation low. There was a speedy interval from mid - 2009 and running into 2011, which
was when gold, freakishly, entered a price bubble. The subsequent blowout came to rest at the end
2015, when the gold price had fallen down a little below the all in cost of producing an ounce of
the stuff.  GLD Weekly

The economy started to regain some growth momentum in 2016  as did inflation and the gold
price, although highly volatile, has trended higher off its post bubble low. Bottom line, gold has
advanced at a muted pace since the low as it should given dollar stability and a still modest set
of economic expansion and inflation data. From a technical perspective, gold is in rather neutral
territory in terms of oversold / overbought and its premium or discount to its 40 wk m/a. In fact,
the metal is about to tackle its flat 40 wk average presently. Failure to break above the "40" would
be a negative.

Speculation about a Trump pro - business policy in favor of faster growth (and more inflation)
has eased greatly in recent weeks as markets players reassess the programs' outlines in terms of
whether they are doable from a political perspective. There is more intensive questioning about this
issue, but the towel has yet to flutter over the ropes by any means. The USD rallied nicely after
the election, but has drifted lower recently, and is in the process of testing its 40 wk m/a, but
to the downside. If sentiment in the markets again begins to favor the Trump stimulus plans,
the dollar could rally and this might put some short term downward pressure on gold as players
buy stocks instead. If sentiment about Trump's ability to get his way weakens further, the dollar
could come down more and gold would likely be favored. $USD Weekly

The economy could well slow down some time later this year as could inflation pressure.
Everything equal, that could lead to a trading range for gold. If the Trump plan passes muster,
that will help gold down the road as would a nasty turn in US - China trade policy which may
also hit the Trump docket.

Sunday, March 26, 2017

SPX -- Weekly

My weekly cyclical fundamental indicators have been on the flat side since the end of Jan. Since
they are forward looking, there is a suggestion that the Apr. - Aug. period of this year could see a
slowdown in the progress of business sales and profits momentum. The SPX has tracked the
indicator well since Jan. 2016, so a flat market could continue for a while. On the plus side, there
are some preliminary indications the recent thrust upward of  the y/y CPI may dampen before
long and perhaps take some of the pressure off the Fed to hike rates quickly.

Trump / GOP Opera Buffa
The American Health Care Plan blunder revealed advanced buffoonery in both the White House
and in the Congress. This first disastrous try at serious policy making should, in my view, knock
200 points off the SPX forthwith. But, for all I know, The Street may well try to put a more
positive spin on this serio - comedy to keep up interest in the pro - business tax and infrastructure
programs still on the docket. The alleged dalliance of Team Trump with Russians to undermine
the recent election and, perhaps, to reset  US foreign policy to a more kindly stance toward
Mother Russia is now a brisk double dumpster fire that still requires attention.

The SPX is in the midst of working off an intermediate term overbought condition. The post -
election rally has been very resilient, but with some slowing of profits growth out ahead and
the recent AHCA fiasco set to prompt at least a little shiver, you might keep in mind that
longer view trend support is at SPX 2200 - 2250.  SPX Weekly

Wednesday, March 22, 2017

Oil Price

Back on Feb. 5, I posted that the oil price was subject to a hit to the downside. The 52 wk
price momentum had assumed parabolic proportions in relatively short order and speculative
long positions in the futures market had reached record levels. Too much was riding on a
continuation of a sharp rise in the price.  Oil Price

Price momentum has come way down and the grandly elevated speculative long position has
been partly unwound. the uptrend in the oil price since early 2016 has been broken. The price
is now veering toward an intermediate term oversold but has room to head lower before it
reaches that level. Oil has remained in the $40 - 60 bbl. consensus range and there is near term
support down at roughly $44.

Oil demand has firmed as expected, but production has been larger than earlier consensus had
it as others ex the OPEC core production cutters boosted output, including the US. So, the
market is not yet in balance on supply / demand and oversized inventories of crude have moved
higher. The financial damage to the industry from the 2014 - early 2016 price bust was not
sufficient to wipe out much marginal production, and the Saudis will have to keep that in mind
in deciding whether to hold back OPEC output beyond the Jun. 30 termination of the current
production cutting deal. It might be wise to wait and extend the deal to see if rising demand
picks up what is now a small surplus in daily output before going 'nuclear' again.

With a strong bullish case now more elusive in the near term, I would not mind seeing the
still large speculative long position in the futures market unwound further before showing
further interest.

Friday, March 17, 2017

SPX -- Weekly

This cyclical bull is currently still trading at a major 3 - 6 month (intermediate term) overbought.
The SPX is near its recent all time high, but positive momentum has stalled in recent weeks and
the uptrend line off the post-election rally has been violated. But, there is not enough evidence to
argue that the rally has ended yet. On the fundamental side, my forward looking cyclical weekly
indicators have also flattened out. With the Fed in tightening mode, market players are watching
weekly and monthly indicators carefully. Monthly business sales have lifted nicely and profits
data is improving but other core measures of economic health such as industrial production, the
real wage and 12 month civilian employment growth are far less imposing. By the same token,
the slow pace of broad economic growth still leaves expansion potential ahead. My business
strength index stands at a mild 133 with economic overheat set well above at 140. Overall, there
is 'room' for another pronounced slowdown in the weekly cyclical data set which could trouble
the market, but there is enough slack to warrant the suggestion that any sharp slowing in the flow
of short term data may be followed out in time by yet another cyclical upswing. SPX  Weekly

With the growth fluctuations in a lengthy but slow economic expansion still leaving slack to
be taken up eventually, and, with the Trump stimulus programs still to be fought over, it is not
hard to understand the now popular idea to stick with a high equities allocation and not bother
with market timing. I am too much of a trader to be comfortable with such reasoning.


Thursday, March 16, 2017

Economic Growth Momentum, Stocks & Bonds

Since the US economic recovery began in 2009, there have been three intervals when weekly and
monthly economic momentum data have surged: early 2009 - early 2011, early 2013 - late 2014,
and mid 2016 to the present. During much of the 'surge' periods, stocks have performed very well
and the Long Treasuries has been trashed. Noteworthy now is that weekly and monthly momentum
data have been running strong for an extended period and may be set to slow down over the Apr. -
Aug. 2017 period. Looking at recent markets performance, there has been a dramatic 'rotation' out
of the long bond and into stocks. SPY:$USB

With the Fed moving very slow to lift still nominal short rates and with some inflation harbingers
such as industrial commodities (including crude oil) having lost positive price momentum, the
possibility of a temporary but significant reversal in the relative strength ratio of stocks to bonds
cannot be blithely dispatched.

The long term trends for both economic growth and inflation are in pronounced down sweeps and
until the time comes when we can say with some conviction the economy has moved from being
price stability prone or even, gulp, deflation prone, back on to inflationary turf, bonds should not
be as richly ridiculed as they are currently.

Perhaps the Trump / GOP stimulus plans that remain on the docket will settle the question and
one can bid adieu to bonds for a good while. That is the current mantra in the markets. More
and more folks are now saying stocks are in a new secular bull market and not just a cyclical advance.

Keep a couple of things in mind. Through most of the economic recovery / expansion stocks
and bonds have been exceptionally sensitive to shorter run changes to economic momentum,
and also note that even though the GOP controls both ends of Pennsylvania Ave., progress
on the agenda has been halting at best.

Monday, March 06, 2017

Stock Market Profile

Cyclical bull market... Buttressed by a year of improving business fundamentals, low interest rates, still modest inflation...However, the market is heavily overbought for the 3-6 month term and is hyper extended especially for the long run...It is expensive on valuation and is facing an increasing headwind from decelerating liquidity growth.

The pace of the advance in such key weekly data as sensitive materials prices and the rate of
decline in initial unemployment insurance claims have been impressive over the past year.
The same may be said for the PMI new order data. Some slowing  in the progress of these
weekly / monthly indicators may be expected over the next few months, and this probably
will not escape investor notice.

Industrial production has been quiescent over the past year but appears set to accelerate in
response to strong new order numbers. Stronger IP will power up business profits but will add
to inflation and could well lead the Fed to take more aggressive action with short term rates. Such
developments could put upward pressure on bond yields and will lead some market players to
reassess their comfort level with the markets p/e ratio.

The market is now trading about 20x estimated 12 month earnings through Q1 '17. That is on the
high side of history and may not sit well as rising production adds cyclical pressure.

The Fed has been curbing the growth of its balance sheet and much stronger total business sales
is eating into the excess liquidity provided by the private sector. The liquidity picture is not yet
a negative for stocks but is darkening. Here too, rising production may play a role.

I am posting the weekly chart of the SPX early because it best reveals the heavily overbought
environment we are passing through. Overbought markets surely can get even more so, but we
are well along here and a loss of the strong momentum of recent months may not sit well.
Weekly SPX

Wednesday, March 01, 2017

SPX -- Daily

Buy side trading discipline has been cast to the wind and indicators warning of a substantial
short term overbought condition in the market have been waived off. Market timing is out
and chasing them up is in. There is as yet no economic growth  visibility past mid - year, 2017
and all the Trump / GOP Congress programs are being nudged further into the future and
worse, are laced with fallacious "single entry bookkeeping" by the Street and various analysts.
there is a lot of heavy political and logical thought lifting to be done in the months ahead.
SPX Daily

Saturday, February 25, 2017

A Surprising Change...

Now in my late 70s, I never thought this would happen. I have become lazy. Henceforth, I
will post only occasionally. You know, for several years now, I have been much more interested
in how the US economy would come out of the global depression than how the markets would
do. We are not out of the woods yet, but the US has made substantial progress in stabilizing
the economy. Unfortunately, the socio-political side of the ledger is not in very good shape at all.
We are in for a period of White Mischief as the GOP is set to pander to the wealthy and is
eager to take actions that will create an even larger mal-distribution of income and wealth.
So, social stability could be threatened in the years ahead if a tyranny of the minority lead
by Trump and his 'basket of deplorables' fully gets the upper hand.

Monday, February 20, 2017

SPX -- Weekly

The cyclical bull market remains intact. US business sales have recently accelerated sharply to  4 - 5% y/y and SPX net per share is starting to break out to new high ground. Leading earnings indicators imply rising earnings well into this year, with $130. an ok target, and with analysts now
looking for upwards of $150 in 2018 (assuming a battery of tax reforms are enacted). Inflation
is also on the rise with the CPI registering 2.5% y/y for Jan. '17. The Fed is now behind the curve
and is widely expected to raise short rates again before long. Total financial system liquidity is
adequate to fund the economy, but with business activity now much stronger, there is little excess
liquidity to fund the capital markets. Moreover, the production side of the economy has been
running flat, and if it resumes growing as expected, resources will tighten a little and inflation
pressures could intensify further. The current upswing in business activity is the third one since
the economy began its recovery in 2009 and to sustain it easily in the months ahead without over-
dependence on credit accumulation, both the real wage and jobs growth will need to improve.

Investors have yet to begin marking down the SPX p/e ratio as they should in view of prospective
faster inflation and higher interest rates.

Market players have so far only factored in the positive promises from The Donald when it comes
to allocation to stocks and equity portfolio strategy. That is starting to change as folks watch him
in action. There has been little effect on the stock market so far and for all I know it may stay
that way. But The Donald can be a wild and crazy guy, so be careful.

the SPX is now strongly overbought on an intermediate term basis.  SPX Weekly

Wednesday, February 15, 2017

SPX -- Daily

The SPX is now in short term blow off  mode. It has broken above the well - defined 2016 - 17
price channel and is sharply elevated on the 14 day RSI. In recent sessions, there has been a
breakdown of long side trader discipline with folks simply chasing the market higher. On occasion,
this type of near mindless activity can end very badly in a shorter run context.  SPX Daily

Sunday, February 12, 2017

SPX -- Weekly

My weekly fundamental indicators continue in strong uptrends as they have since Feb.'16 and so
continue to support the now nearly year old rise in the market. Key monthly economic data such
PMI, production and business sales have now also fallen into line. Inflation pressure is on the rise.
It is boosting pricing power but has not yet prompted the Fed to abandon the gradual approach It is
following in setting higher short rates. Liquidity provided by the private sector appears adequate
to fund improving real growth, but the Fed is allowing liquidity to run off its balance sheet, which
is a negative that increases the risk to both the economic expansion and the stock market.

Everyone sets their own parameters, but when the Fed does not have your back, I prefer only to
trade the market and hold long positions only for less than a year. On an historical basis, trend
SPX earnings are not extended, but price is hyper - extended owing to the sharp rise in the p/e
multiple since 2011. That development makes me cautious as well, because throughout history
when hyper - extended bull markets turn down, the declines are invariably strong and fast.

For now, few investors are arguing with an improving economy, rising but not yet threatening
inflation, and a Fed that is moving slowly on raising rates.

The market rise in place since early last year continues, and, on a weekly basis, is growing more
overbought.  SPX Weekly

It is a moderate overbought and may have room to run higher, but the indicators shown suggest
that a pause in the positive action could come soon. At present, the SPX is running about 5%
above the trend line that has supported it since early 2016. keep in mind however, that a strongly
trending market such as we have currently can overwhelm conventional indicators of overbought /

Wednesday, February 08, 2017

Gold Price

Gold economic fundamentals have been mildly positive since early 2016. As discussed over the
past year, the first rally off the 2016 lows in the $1050 oz. area was spectacular, but ended in fiasco
as speculators lost discipline and chased the metal up to 1375. I resumed posting positively on
gold on 12/7/16, and the market has begun a new trend up from the 1140 area. It broke resistance
at 1200 early this month and has gained steadily. The fundamental outlook for gold -- faster
economic growth, rising inflation, a gradualist Fed and dollar weakness remain in place, but so
does Gold's price volatility. The metal is now overbought in the short term. Gold Price

Sunday, February 05, 2017

Oil Price

Well, I have been wondering whether this would happen. The oil price has been trending up for nearly
a year. The current price is just below the post - crash high and the market is not overbought against  its 40 wk. m/a. The strongest seasonal period is just ahead and is set to run through Apr. on demand for the gasoline build for the northern hemisphere peak driving interval. The OPEC / Russia
 production cuts have apparently held and the price did not tank over the seasonally weak
Oct. - Jan. period.  On the flip side, the 52 wk. ROC% is going parabolic. That is suspicious, but is
not necessarily fatal. What is worrisome, however, is that long side speculative interest in the oil
futures market is at a record high, and currently tops levels seen at major oil price highs. All the
money that is programmed to go into the long side of the market may not all be in, but maybe we
are not far off from that level. Oil Price

The oil market's supply / demand picture should gradually improve as 2017 wears on, but with
bullish sentiment so strong at the moment, perhaps their is room for a painful hiccup in the
market before it strengthens further.

Saturday, February 04, 2017

Inflation Outlook

The broad money supply (M-2) has grown rapidly enough over the past decade to underwrite an
inflation rate of about 5%. But realistically, inflation is not generated in a vacuum, and with
economic demand running well below the level of economic supply, there have been few times
since the Great Recession bottomed in early 2009 when inflation, measured y/y, has exceeded 2%.
As all know, the long term direction of inflation has been in decline since the extraordinarily high
levels seen in the late 1970s / early 1980s. That longer term trend line now has the CPI at 2% and
on schedule to zero out by around 2020. The rapid industrialization of the developing world over
past 30 years has created a large capability to deliver goods and services more cheaply.

The future inflation pressure gauges I use rest heavily on the momentum of broad measures of
commodity prices and key measures of capacity utilization. These measures have been signaling
higher inflation ahead since early in 2016 and have intensified recently as global production has
started to pick up a little steam. As well, another and longer term measure of economic demand
pressure that I use suggests higher inflation running out into 2018. Looking out into next year,
it is not hard to envision the CPI in a range of 3 - 3.5% at some point, especially if oil supply
and demand come into better balance.

Soon, the economy may have hit levels where history shows that the Fed would begin to raise
short term interest rates in a more nearly serial fashion. The Fed has begun to run behind the curve
but continues to appear to wish to proceed to tighten policy in a very gradual fashion. The
gradualist approach could well change if the new administration and the Congress do embark on
a program of stronger fiscal stimulus.

Viewed in the longer run, I think it is far from clear that the ongoing trend of decelerating inflation
has ended. The next recession, if it occurs in the next several years, could bring a return of
deflation pressure and create the need for even more radical techniques of monetary easing. I
suspect the Fed is somewhat concerned about that risk even if most investors and traders are not.

You can link to an interactive chart on the CPI here > Inflation Rate 100 years

Friday, February 03, 2017

China Stock Market

It has been little more than a year since I last posted on China. Since then, the economy stabilized
and the bubble induced by official commentary to bull the market had collapsed. China did intervene
in the market to let it down as easily it could, and with fiscal stimulus programs and 10%+ money
M-2 growth, the market made a partial recovery and followed along on up with the US SPX. I
did not trade it despite the 1.35 beta on the GXC China index fund  and stayed close to home
instead. Despite the fact that Trump won the election, the China market rallied along with other
major markets, suggesting that market players are not yet concerned with a US - China con-
frontation on trade. The GXC spdr ETX is reasonable at $70 in a partially washed out market,
but given the elevated beta on the stock has well above average price risk if Trump is not
bluffing and battles China on trade policy. GXC

Tuesday, January 31, 2017

SPX -- Daily

The SPX has been essentially flat since mid - Dec. when the strong post - election rally hit a heavy
duty short term overbought. Since then, the key indicators shown on the chart have been fading
just as they did after momentum peaked in the first two up legs of the recovery that began early
in 2016. SPX Daily

Interestingly, the action over the past year shows that decay in the momentum of the SPX does
not signal trouble ahead until the market breaks its 25 day m/a. Then the market has grown less
stable and eventually results in a sharper dip that tests the 200 day m/a. No one can be sure that
this pattern will be repeated in the weeks ahead, but I have found it interesting because at some
point it would be logical for traders to hesitate and seek confirmation that the economy remains
on a positive track and that the new administration is going to pursue sensible policies. The Trump
guys also have the option of moving fast to secure the stimulative and foreign earnings repatriation
programs they seek or waiting for a time to secure a better economic environment both for the
2018 and 2020 elections.

New Yorkers know that the Donald is an egomaniac who does some positive things and some
very destructive things. Since he has apparently decided to be himself as president, folks who
are learning about him as they go along will need to adjust to all the dumpster fires he creates.
For all I know, there may be a little witness distress building now, although the market action
is not yet evidencing it since the market's progress mirrors that of the pattern of the past year.

Friday, January 27, 2017

Stock Market Summary

It has been a long, rather slow economic expansion cycle. S&P profits started strong, but hit a snag
in late 2014, and net per share is only now likely to trend up to new highs. The big story has been
the dramatic increase in the SPX p/e ratio since the end of 2011. Investors have been confident
enough in the Federal Reserve to backstop real economic growth, however anemic on an historic
basis, to direct their attention to the policy of super low interest rates supported by nominal inflation
to lower the discount rate on future cash flows from stocks and thereby hike the p/e ratio. It has
been a repeat of the 1960s despite the tepid economic and productivity growth.

The end of quantitative easing by the Fed as 2014 wound up launched a negative adjustment
process for the economy and stocks, but as private sector liquidity remained moderately positive
enough to fund ongoing cyclical expansion, the economy and the stock market regained a new lease
on life early last year with enough promise to support a rise in stocks to new highs. SPX Monthly

it is not clear that the economy and profits would support much of any gain in stocks this year,
but investors have been energized by the promises of the new Trump administration to foster
stronger economic growth in the years straight ahead and have revised outlooks to reflect faster
profits growth and the expectation that inflation will be tame enough not to drive the Fed to jack up
interest rates too quickly. For investors, it is not the best of all worlds, but it is good enough.

There is capital slack in output capacity and ample liquidity in the banking system to support
a good two years of faster economic growth, but the labor market has already tightened and it
remains to be seen whether new demands on labor can be satisfied given elevated skill set
requirements, a lack of worker mobility and eventual stronger wage demands.

So far, we do not have blueprints of new fiscal stimulus programs, possible negative Trump
forays into restricting trade and the willingness of the Fed to cut the new crew enough slack
to pull it off. Big questions, yes, but investor confidence has remained unphased.

We also have a stock market that is running about 5% above fair value and one that has to be
sensitive to the tradeoff between growth and inflation given the high dependence of investors
on seeing interest rates that remain modest by historical standards.

Sunday, January 22, 2017

Update Of Liquidity Cycle

Back on 12/12/16, I posted an upbeat view of monetary policy and the liquidity cycle.  liquidity
It is appropriate to update this document now. Two series I watch to gauge the amount of primary
system liquidity that are provided by the Fed are Fed Bank Credit (the Fed's balance sheet) and
the monetary base. With the end quantitative easing as 2014 closed out the Fed froze these two
series. I believe this closing of the liquidity spigot played a role in slowing down the US economy
and the stock market over the past two years. The US stayed out of recession mainly because of
the more than adequate growth of private sector funding. However, as part of its efforts to raise
short term interest since late 2015, the Fed has constricted the growth of its balance sheet by nearly
$50 billion and the monetary base by nearly $400 billion. During the Fed's QE programs,  the
banking sector saw its excess reserves skyrocket. The reductions in primary liquidity over the
past year lead to a draw in these reserves.  Excess Reserves

The size of the reductions in primary liquidity are unprecedentedly large and would normally be
considered as catastrophic for the economy and the financial markets because of the withdrawal of
liquidity. The Fed is apparently not troubled as the reserves are way in excess of  what banks are
required to hold. Still the Fed is withdrawing liquidity so it is incumbent on analysts to monitor
this situation going forward for possible system wide effects such as development of an undertow
for the economic expansion. Important as well is that the Fed may not feel constrained to add to
its balance sheet if it sees this step as necessary to keep the expansion intact.

Tuesday, January 17, 2017

SPX -- Daily

Short run business / economic data have continued to move positively, but the SPX has been
trading basically flat for the past month. The simplest explanation of course is that the strong
post election rally brought the market up to near term overbought levels and that it has been
in consolidation mode since.  SPX Daily

Price momentum has gone from strong up down to neutral levels as the market settles in near
its 25 day m/a. The indicators have turned down, but no break has yet occurred. As discussed back
on Jan. 2 (scroll down), the pattern of the market advance since early 2016, if it follows through,
suggests continued chop to be followed by a sell down to test to the 200 day m/a. This pattern could
take a couple of months to complete and is based partly on my assumption that players are
exercising bullish zeal in relatively short doses and have not been ready to throw caution to the
wind. The SPX is trading now about 5.6% above the 200 day m/a. In zippier times, when the guys
have been very enthused, the market has ridden up to in excess of 10% of the "200".

The large shifts in political power in the US in the wake of the election point initially toward a
more business friendly environment. I think the new crew is a good thirty years late in terms
of relevance, but most others see it differently. But more importantly for the year upon us, the
market has already blessed us with a good eight year run, economic slack has been cut during
the expansion, and the Fed is now tightening, albeit gradually. It may be tougher to do well
chasing stocks up now then it was when the Fed had our back as They did most of the time since

Sunday, January 15, 2017

Market Psychology & SPX Weekly

Market Psychology
Following the strong post-election rally, the market has lapsed into a 2260 - 2280 range on the SPX
since mid-Dec. Toward the end of last week, Bloomberg featured quips from US dollar traders that
suggested: "Where is my stimulus?" or emerging impatience as the lead-in to inauguration day
wears on. So far, The Donald has offered growth negatives such as the idea that drug prices be
subject to haggling and the hit on Lockheed for padded costs. Meanwhile, the Congress is fast
tracking repeal of the ACA -- a negative for health care business volumes. There is a contretemps
with China over the status of Taiwan and a crackling good dumpster fire involving Russia's hack
of the DNC and subsequent developments. Get used to it. The stimulus programs will be announced
in due time, but we're talking Trump here and you have to take the goodies along with all the other
horseshit and troubles that will inevitably come. So, markets players patience is being tested and
all will have to wade through the Trump crap. And then there is the Fed who may have to face
programs that ultimately raise inflation potential.

SPX Weekly
The SPX continues its bull run from 3/2009. It is now nearing a moderate overbought against its
13 and 40 wk. moving averages, and is moving into overbought territory on RSI and MACD. There
is room to run on the upside, but such will involve investors relaxing more of the caution they have
displayed since the end of 2014 when the Fed ended the QE programs. Near term business
fundamentals will continue to weigh heavily on the action and players who are counting styrongly on
a new pro-business environment to produce more positive market action will have to keep spirits
up.   SPX Weekly

Tuesday, January 10, 2017

Gold Price

The argument here back on 12/7 was that the economic fundamentals continued positive and
that the blow out in the  market over Half 2 '16 left the metal sharply oversold. I also did some
complaining about how difficult it has become to trade gold because the futures market has been
grandly inflated by large pools of hot money over the past 15 years. Well, the market has rallied
here in the early going this year and the deep oversold is being remedied reflecting a weaker
dollar and a flat stock market since mid-Dec. Inflation fundamentals have also picked up on the
basis of stronger US and China economic activity. The US dollar weakness has probably done
the most to carry the day.

The gold price is approaching its 50 day m/a and is also approaching the $1200 level. That $1200
price has served as a resistance point in recent years and when it is pierced with conviction, can
extend a rally.  Gold Price

I have a macro argument that the fundamentals for the USD will strengthen further over the long
term. It is a view I have held since the early aftermath of the deep recession of 2008-09, but it
calls for very gradual improvement in the dollar's standing. At this point, I regard fair value for the
dollar to be around 90 - 92, but it has been running ahead of schedule since the Fed first tightened
policy in 2014 by ending QE programs. Perhaps USD vulnerability will increase out ahead if
inflation continues to firm and the US trade position weakens further.

Saturday, January 07, 2017

SPX -- Weekly

The argument here over the past three years is that the market can rise in sustainable fashion even
without  the strong tailwind of primary liquidity growth from the Fed. In positive cases like this,
the private sector assumes the role of funding economic growth and a rising stock market through
internally generated funds and through the credit window via banks and other credit intermediaries.
Both the economy and the stock market struggled for the past nearly two years after the Fed shut
off the spigots. But, as this past year wore on, the economy has slowly recovered its footing
and the market has moved along with it. So, a positive economic environment has been regained
and can be sustained so long as major imbalances do not develop. The labor market is obviously
tightening, but there is slack in production and some in the services component as well. By today's
computer analytic capabilities, business inventories remain elevated, but have fallen to manageable
levels. Bank balance sheets remain liquid, so there is ample lending capacity available. Inflation
has been accelerating but remains modest. The Fed is now more active, but short rates are
accommodative as rates remain negative in real terms. So long as the economy can grow moderately
without triggering off both stronger inflation and rounds of tightening by the Fed, the stock market
p/e ratio, although very generous, is primarily vulnerable only to troubling external events.

I still want to see business sales fulfill the promise of the forward indicators and continue to
improve in performance. As well, I have my biases, and with a global economy not yet that far
out the tank, I have serious concerns about a Trump administration and how well they can
manage the path to genuine stability. Pundits and strategists continue to regard the incoming
crew positively, but, if I may speak colloquially, I fear this group can fuck things up to a

The weekly chart remains positive, but an intermediate term overbought condition is developing.
SPX Weekly

Thursday, January 05, 2017

Global Economic Supply & Demand

Despite moderate global economic recovery over 2009 - mid-2014, excess production capacity
remains a worldwide problem. Following a period of intermittent inventory restocking during the
during this period, the capacity excesses resurfaced with a vengeance as global production and
trade slowed over the past nearly two years. Emerging market production began to improve
in early 2016, and the rest of the world has gradually followed suit, signaling a return from very
slow growth and deflationary pressure to prospective moderate growth.

Historically, bouts of inflation start in the commodities sector. Over the past year, a broad measure
of industrial commodities has jumped by over 27%, paced by a partial recovery in fuels prices. The
even broader CRB commodities market has recovered by nearly 15% over the past 12 months.
$CRB Weekly

The commodities markets have seen capacity reductions in various sectors since 2014, but excess
remains. My long term macro model for the CRB composite has breakeven in a range of 300-
335, with the low end of the range reflecting the positive impact of lower oil and fuel prices on
the cost structures of non-fuels commodities production.

Even so, with stronger global industrial output growth underway, commodities prices can
recover further, and should global production rise from the low of 1% seen in early 2016,
back toward more nearly respectable 2.5% during this year, the CRB can rise substantially more
and put added pressure on a rising inflation rate. That would strongly suggest more upward
pressure on interest rates and downward pressure on the p/e ratio of the stock market.

Monday, January 02, 2017

SPX -- Daily

The Trump rally reached a short term overbought around mid-month. Since then, the SPX has
been correcting and has moved down to a neutral on a momentum basis although RSI and MACD
are declining. The pattern of the market's rally since early 2016 has been one of a sharp up move
followed by an extended topping process and completed by corrective action down to test the
200 day m/a.  SPX Daily

If the pattern holds suit, it may be early in the "topping" process, but the corrective phase likely
would not run its course until the first couple months of the new year are completed. In this scenario,
the Trump plans for the economy would hit a bump as market players assess how truly likely it
is to pass muster with the Congress and, encompass another Fed policy meeting as well.

But, just as history shows stock market patterns change, so might this one as well, with the
opening weeks of 2017 to tell the tale. Given the period of political testing that surely lies ahead,
I merely suggest that you keep continuation of the 2016 rally pattern in mind.

And speaking of politics, the Trump crew will be facing another issue. Pushing the economy to
grow faster in the shorter term when it is already well along in employment and when signs of
faster inflation are evident invite an eventual economic overheating and possible subsequent
recession that, depending on timing, could be politically damaging to The Donald's re-election
chances. If instead, the new administration acts in a leisurely fashion and allows for a degree
of disappointed expectations to take hold in the economy and the stock market in 2017, he
might wind up in better shape in 2020, should he choose to run again. Believe me, this
discussion will take place if it has not already concluded.

Sunday, January 01, 2017

SPX -- Monthly

The market closed out the year nicely positive. My projection for the SPX, made 15 months ago, was
that the market would close out at 2160. Instead, it finished the year at 2238 or 20.7 estimated 2016
net per share. I foresaw rising earnings, but not the premium multiple. I expect net per share for the
SPX to rise to $120 - 130 for 2017, but accord only a p/e ratio of 17.6x based on a rise in the
inflation rate to 2.4% and a few more hikes in short rates. So, this puts fair value at about 2200 for
the SPX, or nearly 6% below the 2016 close. This value is well below the consensus range of
SPX 2300-2500, and reflects an adjustment to the p/e ratio for a pick up of the inflation rate,
something most other forecasters give short shrift to. I also assume that earnings benefits that
might flow from a Trump policy of fiscal stimulus will more likely arrive in 2018, and allow
risks to earnings from possible Trump restrictive trade and immigration policies not included in the
consensus calculations.

Now, one has to recognize that the SPX itself is on trend, when extended, to rise to 2500 by the
end 2017. Playing 'extend a trend', however implicitly, is no small pastime of Wall Street, so there
is a neat fit with the strong idea that the new administration is going to be very business friendly.

With the old adage that 'the trend is your friend' in mind, and with no red flags yet on probable
SPX net per share and the vigor of inflation, many investors and traders will probably go along
with this high powered projection. You might keep in mind that the SPX could decline this
month to 2100 and not upset the apple cart.

Monthly Chart
The chart shows a continuing cyclical bull but one with very subdued momentum since the end
of 2014. That's when the Fed tightened policy substantially by freezing the monetary base and
its own balance sheet. it also reflects a down wave in economic activity and in profits which has
started to reverse recently. Importantly, the monthly MACD has experienced a positive cross-
over and is trying to lift. The bottom panel shows a broad range oscillator and reveals the
best entry points for this market (when the oscillator falls below 50%). At present, the
oscillator is moving up toward an overbought.  SPX Monthly

Oh yeah. Happy New Year.