Silver -- The Crash Dummy Abides

The silver price is venturing off its second major crash in the past 35 or so years. Silver Monthly
Price bottoms of $5. oz. were not uncommon historically, but over the past decade, silver price
lows have lifted, as the cost of mining the stuff has ascended steadily, with breakeven probably
somewhere near $14 oz.

Silver fundamentals are akin to gold, but silver is also more sensitive to commercial and industrial
demand. The silver weekly chart compares its price to that of industrial metals in the top panel of
the foregoing. Silver Weekly

There has been a blowout in the commodities sector since the spring of 2011 as large supply /
demand imbalances developed mainly because of a strong deceleration of global production
growth with China's rapid descent leading the way among sizable economies. The painful process
of rationalizing supply via shutting in production is now well underway. US short term leading
economic indicators have been improving so far this year and China industrial output has
strengthened with a weaker currency. The US dollar has also stabilized after a very sharp rise
starting in 2014, the oil price has strengthened and inflation potential, albeit modest, is on the rise.
So, there has been a recent bounce in the silver price as traders speculate this heavily oversold
market may finally see some sunshine. The improvement in silver fundamentals has been modest,
and economists are very concerned about just how well the global economy will hold up this
year. Silver is modestly overbought, but is clearly in play for now.

SPX -- Weekly

Technical
The SPX continues to rally off the double bottom of earlier in the year, but, not surprisingly, has lost
some of the strong positive momentum that has characterized this move. SPX Weekly

Obvious downtrends in key indicators shown on the chart are in positive reversal mode after
months of heading south. The SPX has entered an intermediate term uptrend, but not without
caveats. Notice the RSI in the top panel. It has had trouble clearing +60 during the rallies that have
occurred over the past 15 months. This suggests the overboughts have been modest and not
healthy in the sense that vulnerability has been a continuous question. As well, note that the 13 wk.
m/a has yet to challenge the 40 wk. The last such challenge came at the end of 2015 and the
failure set the stage for the poor beginning of the current year.

The indicators on the chart do not show a current intermediate term overbought condition, and
over 3000 chart patterns are nicely positive. However, this measure seldom gets more positive
than it is currently, which suggests very full participation in the advance.

Fundamental
Business sales and profits continued their decline on a yr/yr basis through Q1 '16. SPX net per
share continues to run about $100. at an annual rate. The bright side here is that the weekly
leading economic indicators I follow as well as the monthly PMI new orders reports have turned
clearly positive, suggesting stronger US economic performance as 2016 progresses. This is a very
welcome development. In addition, the yr/yr growth of real monetary liquidity, although sliding
in momentum, is still strong, especially given the chronological age of the current economic
expansion.

The stock market has clearly benefited from the sharp, seasonal rise in the price of oil in recent
months. The oil price is set to transition into a seasonal consolidation phase just ahead. Given the
on again, off again nature of industry chatter about the possibility of oil production constraints,
price volatility out until Aug. or so may be stronger than usual and this could play into the stock
market narrative.

Gold Price

Gold Fundamentals have edged into positive territory since late 2015. The CPI measured yr/yr has
probably made a significant low. The oil price has been rising nicely on a seasonal basis, and even
industrial commodity prices have moved a little higher after after an extended basing period. The
dollar is hanging tough after a pronounced rise, but has lost its positive momentum after reaching
unwarrantedly overbought levels. In all though, the improvements have been modest so far, and
unsurprisingly, the rise in the gold price has stalled in the short term.

Forward inflation indicators are still depressed but are edging higher, and gold would likely
benefit if only global economic growth momentum was not so subdued. World industrial output
has had trouble clearing 2% on the upside over the past year, and adjusting for global excess
production capacity via plant shut-ins is a slow and painful process.

Based on its 200 day m/a, gold has reversed a lengthy downtrend and is now in positive mode.
$Gold Daily

Gold is working off a heavy short term overbought according to the important RSI measure and
may still be slightly over bought on the 14 wk. RSI (Not shown). Stories are making the rounds
about an OPEC production freeze, but since this type of story is typical of post oil price bust
periods, betting the ranch on an actual output freeze now may not serve as well as noting that
the oil price is about to enter a period of seasonal price consolidation to last a couple of months.

The next important resistance level for the gold price is $1300 oz. If gold were to hit that level
any time this year, it would herald what could be the start of a more durable advance.

SPX -- Daily

It has been evident since late Mar. that the rally in place since mid - Feb. had become overbought.
The setback this week suggests that a corrective move may be underway, but it is too early to tell
whether or not it will be a significant move or not. Price momentum began to fade late last month,
and the break in the clear, sharp shorter term uptrend came early this week. SPX Daily

For possible hints on short run direction, you may want to focus on the RSI indicator in the top
panel of the chart to see how the market behaves if and when this indicator drops down to the
50 level (neutral). The bottom panel of the chart features the daily oil price. The stock market
has been tracking the oil price closely this year as a higher oil price signals better earnings
performance for both the oil sector and the SPX. Both oil and the SPX were so deeply oversold
this year, that one perhaps should give not up on either too quickly. As well, shorter term leading
economic indicators are on the rise for the US, so the desultory earnings expected for the first
quarter may not be indicative of results for the year for both the SPX and oil.

The current fair value bands for the SPX are featured on the chart as well (1870 - 1990). Plainly,
investors have been looking for a positive turn in earnings as the year progresses.

Oil Price Update

The strong seasonal rally in the oil price should run out to the latter part of April, but when such a
seasonal run is underway, strong price momentum ends early in the month. Experienced traders
started dumping a little early, mainly I think, because the price failed at its 40 wk. or 200 day m/a.
Weekly WTIC

The rally in oil from early Feb. did take out the nearly two year price down trend line as well as the
13 wk. m/a. Although these were encouraging developments for the bulls, the key test would be at
the 40 wk. m/a as discussed in the March 9 post. A failure to take out the 40 wk. m/a in the spring
of 2015 was the kiss of death for the rally last year, and the failure to take out this resistance level
this year cannot be counted as a good omen. Even so, it might be wise to watch this market for a
little while longer before throwing in the towel. After all, this winter's price washout came on very
heavy volume and at price levels nearly 50% below break even for the industry.

The bottom panel  of the  weekly chart shows the 52 wk. rate of change for WTIC crude. The
Fed is watching this indicator to help it gauge the direction of inflation momentum, and if the
indicator improves further up to the zero level or better as the year progresses, this would go a fair
way in lifting the near deflation readings registered recently on the CPI measured yr / yr.

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.

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.

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.

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.

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.

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'.

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.

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.

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.

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.

SPX -- Monthly

Fundamentals
The market carries a 'tight money sell' rating. In addition, the deceleration in monetary liquidity
growth in real terms has been substantial enough that it might only be a few months before a
recession vulnerability warning arises. Should such a warning occur soon, it does not imply that
recession is imminent, only that the economy is entirely dependent on its own internally generated
resources to fund or underwrite continued economic expansion. Since internal resources, and
especially private sector credit flows, are not leading economic indicators, the continuation of
economic growth is a much riskier proposition and is contingent on the continuation of good
balance between the forces of economic demand and the means to finance them profitably.
Empirically, the economy can expand for at least a year after the vulnerability warning pops up.

The US economy has been growing slowly and the leading indicators I follow continue to suggest
slow going. Even so, it is worth remembering that 2016 is off to a stronger start and regeneration
of improved economic growth momentum should not be dismissed out of hand. The same may be
said for business profits.

There is no case yet for saying a cyclical bear market is in the offing; only that economic risk
is about to bottom. From a stock market perspective, equities prices can still rise, but without
a stronger liquidity backdrop, market risk is now significantly higher from an economic
standpoint.

Corrective market action over Half 2 '15 has reduced valuation risk. It is too early say whether
continued slow economic growth will lead investors to demand more in dividend yield and be
unwilling to pay the current p/e ratio freight.

Monthly SPX Chart  (SPX)
As I warned late last winter, the rollover in the monthly MACD to the downside was a signal of
concern as it warned of an open ended loss of positive price momentum. Other indices have
faired more poorly, but damage to the SPX has not been that severe yet. Note that the RSI
panel in the chart shows hesitancy to break below 50 and that the market itself continues to
rally off levels a bit above 1800 on the chart. The chart holds plenty of appeal for the bears,
but I have yet to join this group.

Oil Price -- Important Seasonal Test Ahead

Producers / refiners are gearing up for the major northern hemisphere driving system. Typically,
the oil price tends to to rise strongly but irregularly from the end of Feb. through the end of Sep.
But not always. Last year the normal strong seasonal pattern was cut off during the summer as
oil production surged beyond expectations. It is perhaps unwise to make a price forecast this year.
Although oil production may have trouble surpassing that of the second half of 2015, inventories
are at high levels and it is far from clear that demand growth will surpass 2015 by much at all
given the list of reservations forecasters have about global economic growth in 2016. Still, this
represents a normally favorable period to trade oil long. The market is clearing the 50 day m/a
and is moderately oversold against the 200 day m/a. both MACD and RSI are trending up. The
USO ETF is shown in the bottom panel of the chart just ahead....$WTIC

Long Treasury Bond Yield %

The argument here has been that with low US economic growth, nominal inflation and near zero
short term yields, it was reasonable to see the long 30 yr. Treasury trade in a range of 3.00 - 3.50%.
The central idea has been that one needs at least 300 basis points of premium in the short run to
offer partial compensation for all that can happen to the bond market over the long term. $TYX

Well, as the chart shows, with the considerable volatility in the market, the T-bond has not spent
all that much time in the range in recent years. New financial regulation has reduced liquidity
available for market makers but even more critically, the long term downtrend in yields has
birthed a generation of market speculators who use Treasuries to hedge portfolio risk more
aggressively than in the past.

Concerns about the prospects for global economic growth and a stronger US dollar have penalized
the equity markets for months and Treasuries have been granted safe haven status as players fret
that central bankers fail to achieve an acceleration of global growth even with the provision of
ample liquidity and now negative short rates in a growing number of cases.

Because I have yet to abandon the idea that the US economy will have better economic
performance this year, I have been very leery of the bond market given the substantial risk to
the market inherent in faster than generally anticipated economic growth. I currently have no
interest in long side trades in Treasuries until 3.50% or higher, and even then, it might be a
tough go if the Fed, currently chastened by a sloppy global economic environment, reverses
course course on raising short term rates if economic growth improves in the US and inflation
momentum firms up.

SPX -- Weekly

Fundamentals
After losing growth momentum steadily through last year, the economy did much better in January.
Aristotle, a favorite of mine, reminds us that one swallow does not make a summer, and I am good
with that here. Suffice it to say the US needed a more positive month. There were improvements
in both volumes and pricing power. I also remind again that we are about a week away from when
the price of oil turns up sharply on a seasonal basis and it will be very interesting if the bounce
comes, as the oil price has been a significant drag on SPX net per share. I am still open to seeing an
'up'  year for the SPX, but be mindful that even if the economy  performs decently through 2016,
there will still be the Fed to contend with as better economic performance will encourage It to
take another shot at raising rates. There is a substantial amount of crisis mongering among
investment strategists. Since my work does not show that all the hand wringing is appropriate yet,
I conclude The Street has a case of post traumatic jitters reaching back to 2007-08. Naturally, I
hope am right.

Technical
The market has rallied strongly recently, and there is even a hint of a double bottom this year
just above SPX 1800. The market also remains significantly oversold, but make no mistake,
continued progress upward is needed to reverse an extant primary downtrend. SPX Weekly
Should the current rally continue, look for a test of whether the SPX can take out its 13 wk.
m/a on the way up.

SPX -- Weekly

The stock market is in a primary down wave, but for both fundamental and technical reasons, I
have remained an agnostic on its true course for the remainder of the year. the US economy has
lost substantial growth momentum, but is still expanding, and the classic pre - conditions for
development of a recession are not in place. Business inventories remain high relative to sales
but are starting to run off and even a modest boost in final demand will chase the inventory to
sales ratio down. The oil price bust, which has hurt SPX net per share, is coming rapidly upon
a major seasonal low, and even a minor rally in oil will at least stabilize index earnings. The
strong US dollar which has sapped US export sales has been wavering. There are also signs that
inflation, and with it business pricing power, are bottoming. To top it off, the SPX is now quite
oversold on an intermediate term basis. SPX Weekly

My guess has been that the SPX could close out the year at 2160, but with no Fed policy tailwind
at our backs, there is no compelling reason to bank on this guess. The better course for an old
guy me like me will be to jump on rallies from deep oversold conditions as the year progresses
rather than to fret over year end 2016 guess work.

Of note on the chart is the pivotal role of SPX 1850 going back to the end of 2013 when it was
made clear that the Fed's QE 3 program was set to wind down to a close. The market could not
hold recent support at 1875, but it is interesting that it just bounced above the 1850 level. Notice
also the heavy downside volume over the past two weeks. Wishful thinking perhaps, but that
sometimes happens with part time players.

SPX -- Valuation Note

The stock valuation measure I use is based upon the long term centered trend of earnings,
the earnings plowback % and consideration of the long term inflation trend. The model now
has the SPX at fair value in a range of 1870 - 1990. Later in the year the FV range will rise to
1990 - 2120. SPX Chart

The chart shows  the SPX was moderately overvalued through late 2014 and much of 2015.
The SPX has recently traded slightly  below FV. This reflects the fact that index net per share
has fallen below the long term trend of earnings, which has in turn reduced the plowback %.
It also reflects investor concerns about the staying power of the current economic expansion,
worries over the slowdown in China and the stability of the banking system in view of the
weakening financials of many companies in the oil and gas patch. Although these issues may
prove to be of a passing nature, there is a longer term question that may deserve more attention
as time wears on. The longer duration issue has to do with possibly re - evaluating earning
power and growth potential if global GDP growth and business pricing power are to remain
subdued for an extended period. Investors may not wish to confront this possibility now, but
the issue will surely come up for consideration if earnings potential for both the current year
and for 2017 look to be more subdued than currently forecast by the consensus. Here, I
have in mind not so much the cyclical factors, but the longer range ones. Something to think
about.

Gold Price -- Trader Discipline Is Evaporating

As outlined in yesterday's post, gold fundamentals are shifting from negative to neutral and there
has been a strong, so far, seasonal rally. Gold can be very volatile and when its in play the action
can be spectacular. But, currently there is a mad and undisciplined chase to get long. This kind of
action is repulsive and only the most nimble of the nimble should be involved. Gold Future

Gold Price

Back on 11/22/15, I posted that although Gold remained in a longer term bear market, the metal
was worth your attention because of its oversold status and very bearish sentiment. Gold Price
Gold based out through year end 2015, and it has been in a strong seasonal rally this year which
has continued into Feb.

Gold fundamentals have shifted somewhat away from dead certain negative toward neutral.
US inflation momentum, measured on a yr/yr basis, may be bottoming currently, and the US
dollar, which has enjoyed a bull run to very overbought levels, has recently ebbed on speculation
the Fed is turning considerably more circumspect on how fast it will further tighten monetary
policy. Weaker stock prices on a global basis has also chilled confidence that financial upsets
can be avoided.

The rally in gold so far this year has been strong enough to break above intermediate term down
trend lines and has brought gold up to an important pivot point at 1200 oz. It has been a good
trade, but the market is now very overbought on a shorter term basis and the lift off has been
vertical enough to force traders into chasing the metal price up. $GOLD Daily

Given that gold has not been able to hold the 1200 price level for over a year now, it would not
be a surprise to see it back off and establish more solid footing before resuming the assault.

SPX -- Daily

The SPX has again found support near 1875, a level that has contained downside thrusts since
the autumn of 2014 at least on a closing price basis. SPX Daily

The latest rally attempt from a deep oversold has been a fizzle to this point, with the market not
shooting up strongly after a spike bottom as it has over the past three occasions. Of itself, the
challenge to the latest bounce off support does not cast a shadow of vulnerability, but it does
suggest there may be an alteration of the recent pattern away from single point bottoms. Testing
of support may well again be at hand. The persistent downtrend in shorter term RSI suggests
that traders who are not terrifically nimble think twice about long side bets until there is a
positive reversal in that indicator.

The broad stock market remains sensitive to the direction of the oil price which has not made
a clear bottom after months on end of bust, although, and this is worth noting, the price of oil
is fast approaching an annual low on a purely seasonal basis. Weaker petro and gas sector earnings
have not been fully offset by wider profit margins for net business consumers of product on a
macro basis, with SPX net per share under pressure just as it was over 1984 - 1986 when there was
a very sharp blowout in the crude price. It has not been helpful to the stock market this time out
as investors must contend with the economy's flirtation with deflation and an elevated p/e ratio.

SPX -- Weekly

Fundamentals
12 Month net per share for the SPX hit an all time high of $114.50 For the Sep. '14 Q3. Since,
annual net has declined to around $105. for Q4 '15.Real economic growth has slowed persistently
since the late summer of 2014, pricing power has eroded, and my selling price / cost measure has
come under modest pressure at the macro level. Other notable factors have been the blow out in
the oil price and a stronger US dollar which led to slower export sales and currency translation
penalties. The deterioration of earnings fundamentals has carried over into early Jan. this year,
with leading economic indicators reading flat.


the dividend yield of the SPX sits at 2.3%, and is well above the level of cash equivalents, but the
p/e multiple is under downward pressure reflecting ebbing investor confidence over the erosion of
the business outlook. Book ROE% is 13.5, but is under pressure from declining net per share.
Internal growth potential has dropped to a below average 6%.

From my perspective, risk capital needs to earn on average 10% per year. The SPX does not clear 
this hurdle and the outlook for sales and profits needs to improve markedly through the year for
the market to have economic value.

Technical
After an extended topping process around the SPX 2100 level the market has entered a primary
downtrend. However, the SPX is now deeply oversold on an intermediate term basis, and given
the volatility in evidence since last Aug. one simply cannot take an extension of the weakness in
the market for granted. Let's see how the heavy oversold plays out. SPX Weekly

Oil Price

There is a welter of arguments and rumors concerning both global crude oil demand and supply 

for 2016. Rather than get buffeted by all the issues, I am content to follow the well worn seasonal

annual pattern for now because it has been working recently. The seasonals call for a rally over

the second half January (now nearly complete) to be followed by another sharp leg down in Feb-

ruary to what could be the annual low. In late February, refiners begin to ramp up for the spring

and summer driving season, and the oil price enters a period of seasonal strength that runs through

September. From a purely seasonal perspective, this is the time to be long crude. 

Seasonally speaking, crude could fall as low as the low $20s bl. over February before rising demand sweeps the price higher. As an example, crude rallied from $45 to $60 over this period last year before surging supply sent it lower. The next six odd months should give us a better test of the supply /demand balance and whether rising output will squelch any plus from the demand side.

In the meantime, oil remains in the grip of a powerful bear market, and, for the short run, would 

have to clear $35 on the way up to give a bullish case any credibility. WTIC Daily

China -- Stock Market Update

I have done well trading the China market. By the same token, it is very difficult for me to write
intelligently about the place . Not only am I a world away from it, but by Their own admission,
China's economic data leaves a lot to be desired. The latter has led to the creation of a small
universe of economic / financial professionals who make up their own data bases and create
forecasts from said data. Thus, depending on who you follow, China real GDP is growing
somewhere between 2 - 7%! My preference is to take the numbers as China reports them and
to commit the additional sin of viewing the data through western eyes. So, be warned.

In the blog archive is a post dated 6/24/15 in which I first congratulate myself for turning bullish
on the China stock market at Shanghai 2000 in mid - 2014 and then discussing how at Shanghai
4700 in late Jun., I concluded the market was rather overdone, with extraordinarily high RSI
readings. Shanghai Weekly

China shares are now in a nasty bear market as all know. Official data indicate China GDP and
production have stabilized at nearly 7% over the past year. The argument here has been that
even if China was growing as fast as officially indicated, the Shanghai would be reasonably valued
in a range of 2700 - 2800 as marked on the chart. With the market now at a little above 2900,
most of the excess valuation has been wiped out. Moreover, the market is approaching an inter-
mediate term oversold. Because of the occasional 'all or nothing' movement of this index one
would be foolhardy to say a bottom was near at hand. Still, I plan to keep an eye on it.

The bottom panel has the S&P broad cap weighted index of China shares (GXC). At a value of
64, this less volatile index is trading 10 x net per share. This does not appear to be an excessive
valuation by any measure, even if China is growing somewhat less than 7%. I view the Shanghai
as still a little overpriced relative to the much less famous GXC.

SPX -- Weekly

Fundamentals
As previously discussed, I cleaned out stock longs on Nov. 2 after playing the Oct. rally and posted
a "tight money sell" rating on Dec. 16, when the Fed's decision to begin raising short rates was
implemented and my primary fundamental indicators turned negative. My biggest concern for well
over a year has been that history shows that the stock market and the economy have troubles when
the Fed turns off the liquidity tap after a lengthy and very large build up. Although there have been
few instances in US history when this type of sequence has occurred, it has turned out to be so
this time as the economy has steadily lost growth momentum since mid - 2014 and the stock market
has followed suit. Surely, the bust in the oil market has substantially magnified the effects of the
major tightening by the Fed, but the die was cast. The economy has remained in positive territory
so it could have been worse.

The stock market can rise when my primary indicators are negative, but whatever the degree of
positive return potential, the risks to equity capital are quite a bit higher. Without liquidity support
from the Fed, the economy is dependent on  sustaining growth from its own internal resources.
The steady erosion of economic growth momentum with the added burden of a weak energy sector
shows the economy is struggling to transition to sustainable progress and has led to a  trend of
declining earnings in the bargain. The p/e ratio is also eroding as confidence wains, having fallen
from 20.3 x net per share to 17.9 since the spring of last year. The current lower multiple on $105
per share earnings for the SPX can slip lower if investor confidence continues to wain.

The economy can still right itself as the year progresses. Jobs are expanding, the level of consumer
confidence is positive and fiscal policy is in transition from being a drag to being stimulative.
There are excess inventories in the system, particularly petro based, and these overages should
tend to wear down as the year progresses. Be mindful too that net petro product consumers are
continuing to experience a windfall from the tanking of the oil market.

Technical
Historic weakness so far here in Jan. has brought the SPX to a deeply oversold condition short
term and an interesting oversold is also fast developing for the intermediate term as well.
SPX Weekly

The bottom panel of the chart shows that a major oversold on the 14 wk. stochastic measure is
developing for only the sixth time since 2011. Stochastic oversolds like that shown often yield
rallies even in bear markets. So pay heed.

As a testament to the whipsaw volatility of the recent market, note as well how the MACD
gave only a short term rally signal in Oct.before it rolled over wickedly just as it was on the cusp
of a buy signal that could have provided several months of positive return (I lucked out on
that one).

Summary
Welcome to the world of having to go it alone without help from the Fed. You are not alone.
Keep the Nexium handy and try not to use the john when the market is open. 

SPX -- Daliy

With a weak market failing to hold support at SPX 2000, it has entered breakaway down mode
and is headed to major support in the 1870 - 1875 area. Theoretically, a break below this latter
level would open the SPX to a much steeper fall. SPX Daily

Folks will be watching 1875 support very carefully. And not just bears. If the market falls to this
level soon, it will be heavily oversold, and if the SPX holds around this level, there could be a
strong rally comparable to what was seen back in Sept.

There has been much chatter about China, but I think the main issues for the US market concern
the steady loss of economic growth momentum since mid - 2014, a blow out in the oil price,
the resulting trend of steadily weakening of earnings and the fact that despite this deterioration of
fundamentals, the Fed has chosen to begin the process of "normalizing" monetary policy by
raising short rates up from the zero bound. More broadly, the absence of the large QE 3 tailwind
has undermined investor confidence, with more players perhaps unwilling to capitalize net
per share at the higher levels observed a year ago. Since recession indicators have not been
signaling a future recession yet, the market, in assessing dour fundamentals, may simply be
pricing in higher risk. Remember, from late 2011 until early 2015, the p/e ratio of the SPX nearly
doubled.

The bull case in 2016 was never going to be easy since not only do the economy and corporate
profits need to improve, but the better results cannot be too strong less the Fed tighten the
screws faster than They have led us to expect. It's called "threading the needle" and we only
get one try.

China -- Year Of Decision

China ratcheted up money supply growth over over mid - 2014 through mid - 2015. In so doing,
the stewards of the economy succeeded in halting a trend of sharply declining production growth.
Since early 2015, output growth has stabilized a little above 6% , measured yr/yr. The strong easing
of monetary policy and subsequent other stimulative measures triggered the big surge in the stock
market through mid - 2015 to excessive levels. At the same time, one engine of growth -- export
sales, continued to flounder and decline. to buttress this area, China devalued the Yuan in Aug.
just as the speculation in the stock market was unwinding. China then tried to hold the new, lower
value of its currency via tightening of its monetary reins and failure to replace liquidity outflows.
It stepped up again in late 2015 to add liquidity aggressively to the financial system, but in so
doing, faced enormous cost to hold its new currency peg. So, it had to devalue again last week. On
top, its stock market cratered again and set up a global equity market sell - off.

Now China has been able to maintain its output growth over the past year without a recovery in
export sales. Time now will tell whether The Dragon will have to devalue the Yuan further to
stop the erosion of exports. If regaining market share of global trade is now a primary objective, it
may well trigger additional capital outflows, which damage other important portions of its economy
as well as China's capital markets.

In a slow global economic growth environment, a fresh China initiative to regain export market
share is bound to have rather limited success anyway, and since China wants to re-orient its
economy to increase consumer spending and its services sector, logic suggests it concentrate
liquidity growth on funding its longer term priorities and allow the currency markets to adjust
to China's new direction.

Since latest available data suggest China is adding liquidity to re-generate monetary growth,
there may be a strong temptation on currency desks to challenge The Dragon's latest, lower
peg. At the same time, China may want to start to husband reserves. To add to the fun,
stronger liquidity growth within its economy could well lift output growth, and signs of
further economic stabilization might eventually garner some recovery of the Yuan.

SPX -- Daily

The downtrend in the SPX which started in Dec. 2015 has extended into the new year, and with
today's break below 2000 support, has become more respectable. Because I read charts more liberally
than most folks and always use hard copy graphs, I have seen the market in a volatile and modest
uptrend since the Aug. '15 low, but now the dip that is underway presently will threaten that humble
trend up if it continues on course down to the 1960 -70 area in the very short run. SPX Daily

Right now the SPX is moderately oversold on price momentum and selling pressure (TRIN), and a
failure to rally in the days ahead would signal something a little more serious might be afoot, which
in turn might necessitate re-appraisal.

SPX -- Weekly

By far the dominant theme for the broad market since late 2013 has been the relatively persistent
loss of positive price momentum. Over this period through year - end 2015, The yr/yr rate of
change for the weekly closing price has fallen from +30 % down to -.7% (top panel of chart)
SPX Weekly. Declines from +30%  yr/yr are often more precipitous than shown on the chart and
are often referred to as "valley of death" moves. The current animal is a little different. It reflects
the ending of the Fed's huge QE program, the subsequent shrinkage of positive economic momentum
and a negative turn in profits and, finally, the Fed's decision to further tighten monetary policy
via raising short rates. This process has transpired against a positive backdrop of continued, albeit
modest global economic growth, still historically low interest rates, and minimal inflation.

The flatness in the market this past year has ended the clear cyclical uptrends in place. The market
did enter a downtrend late in the year, but this appears inconclusive so far. So we enter 2016 with
a stock market that has no clear direction, has  seen a winnowing of breadth and a persistent rise
in selling pressure to oversold levels. Note, interestingly, that the MACD reading on the chart has
turned positive, but note as well the absence of recent "lift" or strong momentum in the indicator.

I have seen about 25 'guesstimates' from strategists for the SPX going forward. Most of them fall
into a range of SPX 2000 - 2250 for year - end  2016 including that of yours truly who is at 2160.
Continuation of the downtrends in the indicators shown in the chart now imply a down market,
 so you need to keep a wary eye on this chart.

You should also scroll down to the 12/13/15 post "Stock Market -- Quick Weekly Profile" and
keep an eye on the last chart linked to (TRIN). This shows a clear oversold condition.

MY BEST TO ALL FOR A HAPPY AND HEALTHY NEW YEAR......

Financial System Liquidity

The Fed's balance sheet and the monetary base both have been flat for a year now, but there is
still solid residual growth in the M-1 measure which lightens the stress from the shutdown of QE.
The US economy and the stock market have held up decently. Private sector liquidity growth has
been adequate to fund a modestly expanding real economy and low short term interest rates and
non-existent current inflation have kept equities players from abandoning stocks where they can
earn 2.2% to hang around and see how 2016 shapes up.

The banks have been expanding the loan book with more categories seeing rising outstandings.
The system is not aggressively chasing deposits but has been content to ease up on balance sheet
liquidity constraints to meet higher credit demand. Overall, the banking system and consumers
are maintaining sufficient confidence to underwrite modest economic growth in the absence of
further quantitative easing by the Fed.

Private sector funding has been growing at around a 5% annual rate for a number of months and
with  low real output growth and zippo inflation, the system has been generating more liquidity than
the economy actually requires. However, the capital markets have not benefited as investor
confidence in both the stock and bond markets has deteriorated as measured by widening credit
quality spreads and the progressive loss of positive price momentum in stocks overall. In fact,
institutional money market holdings in the US have increased by over $100 billion or nearly 9%
over the past 18 months and the guys appear ready to see the new year ushered in before
getting off their hands.                                                                                                                                                                                          

Oil Price Quickie

Historically, the oil price tends to  experience seasonal weakness from early October through late
February of the following year. Interestingly, during this interval, there is a brief period when oil
tends to rally, and this occurs over the second half of December into very early January. I bring
this issue up to caution longer term players who have an interest in getting long oil and related
stocks that price weakness often re-asserts itself after the new year begins. In an ideal seasonal
pattern, the oil price tends to make its low in late February when it is time to build the gasoline
stocks up for the driving season ahead in the northern hemisphere. Seasonal patterns suggest
seeing what January holds in store for the oil price except for shorter term traders. WTIC Weekly

Changing Stock Market Fundamentals

With the decision by the Fed to raise short term rates by 25 basis points, the "easy money buy"
rating I have had in effect since very late 2008 has ended. With primary fundamentals now
negative I have a "tight money sell" now in place. The stock market can rise from here, but it
is no longer rated attractive as an investment but only as an occasional trade. This is only my
preference and others will surely disagree. Primary liquidity measures, the direction of interest
rates and measures of financial market confidence are all negative. I also flag the Fed view
expressed today that as short rates reach 'normal' levels, the Fed will consider selling or allowing
securities held on its balance sheet to run off. That possibility, although may be sound in theory,
has proven disastrous in practice.

Whatever the return potential for stocks may be going forward, stock market risk is now substantial
and rising.

I do follow a group of indicators I regard as secondary and it is a mixed bag at present. The positives
represented are no evolving liquidity squeeze in place, ample private sector credit driven liquidity
relative to the present needs of the real economy, and modest levels of 'sideline' cash reserves. The
negatives are obvious -- an ongoing earnings recession and the high level of valuation.

The upshot here is that the future direction of the stock market is now much more difficult to
predict.

There are a couple of more important factors here.  One is 'career risk'. It has been a lengthy
bull market, the economy is just muddling along, and stocks are expensive. There may be
a number of players out there who have all manner of reservations about the market outlook.
However, if positive price momentum develops and seems like it may have staying power,
many players will hang in there because they do not want to lose clients and their jobs.
Also, in a rising interest rate environment, investors may be inclined to move a portion of
assets out of bonds and into stocks. Finally, we will have to keep an eye on the oil price,
as extreme developments there can challenge the market.

Stock Market -- Quick Weekly Profile

The charts and text below are meant to benchmark the stock market ahead of the Fed's policy
meeting this week. 

Value Line Arithmetic Index (Unweighted)
$VLE is a 1700 stock composite that captures universe of US stocks that are most popular. $VLE 
The powerful uptrend dating from late 2011 ended earlier in the year and the index has been
flat although volatile since mid -2014 reflecting ending of huge QE 3 program, and peaking of
economic growth momentum which has ushered in a mild but persistent decline in profits that
does not yet show signs of a positive reversal. Note persistent decay of indicators since late '13
but with no sustainable price break yet.

Cumulative Advance / Decline Line ($NYAD)
Longer term but cyclical uptrend ended earlier in year and moderate breakdown is underway
as breadth is shrinking with investors becoming more quality and liquidity conscious. Recent
failure of A /D line to take out its 40 wk. m/a on rallies is a shorter term warning sign for the
market.

Buying Vs. Selling Pressure
My preferred indicator is the NYSE measure, or $TRIN. Readings on this measure above 1.5
for the weekly TRIN on the basis of a 6 wk. m/a suggest a strongly oversold market which was
evident in Q 3 '15. Following the recent rally in stocks the TRIN has moved into more neutral
territory but continues to show milder net selling pressure.

SPX -- Daily

With the variety of fundamental crosscurrents in play over the past couple of months, I have been
letting the technicals serve as the guide to the market short term. I cashed out of stocks on Nov. 2
and in posts on 11/9 and 11/20 I cautioned about the failure of the SPX at resistance at 2100. I even
conjectured that with failure to breakthrough resistance, the SPX could fall into the high 1900's. We
are getting close to that area now. SPX Daily

The SPX has been trending down since early Nov. from a powerful short term overbought and is
now heading into oversold territory and could well have further to go. Now, market fundamentals
are set to return to the fore right ahead as the Fed's FOMC decides whether to raise short term
rates at its meeting over next Tues. - Wed. as it has been almost unambiguously hinting. If They
go ahead and do it, the increase will come with the strong suggestion that an eventuating uptrend
will be mild and gradual and that short rates could be allowed to fall subsequently if circumstances
warrant. If this is the correct scenario, players will have the next week or so to sort out further
how much risk each feels is appropriate in a tighter monetary environment which features rates still
at historically low levels. If the Fed decides at this meeting that It does not want to push up short
rates, then investors will have to sort out the Fed's 'take' on the outlook. Certainly, the Fed would
look silly if It postpones the decision and implies "well, may at the end of Jan. '16 we'll look at
it again".

I have never seen much value in trying to psyche out the Fed. I do not see a good case for raising
short rates, but all of us will have to play it as it lays next week. 

Oil Price

The recent decline in WTI crude below $40 bl. beckons the imagination to wonder if the world is
going retro to the decade ending in 2004, when crude ranged from $20 - 40. WTI Monthly Back
in that period, spare production capacity at the wellhead averaged near 4 million bd., a tidy amount
on a much lower base of oil supply / demand. Oil production surged in recent months at what may
well be an unsustainable pace, and if demand grows moderately in 2016, spare capacity may be at
only a little over 1.5 million bls. a day, even factoring in expected larger output from Iran. Cover
stocks are currently put at 3 billion bls. which is triple the size of inventory held a decade ago and
represents a dramatic increase in cover stock investment, no doubt.

Even with the large increase in stocks on hand, eventual tightening in the balance of production
capacity and demand may eventually lead to stabilization of the oil price, followed by a modicum
of recovery.

There has been a dramatic bust in the price of oil on expanded relative supply, but not a bust
in the global industry. In the 40 odd years there have been price busts in oil where excess capacity
at the wellhead ranged between 4 - 11 million bd. Seen historically, the supply / demand balance
currently is fairly tight. However, financial speculation in this industry has at the least quintupled
over the past ten odd years, which I strongly suspect has added greatly to the volatility of the
oil price relative to the fundamentals of the industry.

It is clear the oil price remains in a bear market with periodic moments of panic, and now that
the price of WTI crude has broken major support around the $40 area, the tensions among players
are palpable. The market is once again moving toward an intermediate term oversold condition,
but since OPEC timed the elimination of production constraints for the current seasonally weak
period, one cannot rule out a fast spike down in price. But, as importantly, folks need to recognize
that given what a high stakes game this has become, any perceived improvement  in fundamentals
could trigger a surprisingly positive response in the price of crude. $WTIC Weekly

Monetary Policy

Back on Sep. 15, I argued that a review of the cyclical indicators that have held sway in the Fed's
decisions for setting interest rate policy since the end of WW 2 suggested that if anything,
the Fed should be easing policy. In view of the continued weakening of economic momentum and the
further development of economic slack via falling facilities operating rates, that opinion remains
warranted in my view. In Its apparent desire to raise short rates as 2016 fast approaches, the FOMC
has resorted to spin to make its case. Perhaps a couple of bumps up to short rates will do no economic
damage, but it is costing the Fed credibility and the twists and turns of Fed communications  are
adding needless volatility to the markets (Draghi over at the ECB is faring no better in this regard).

To compensate for an obvious indiscretion, the Fed promises to be sparing and gentle in raising
rates so as not to be too disruptive to the economy and the markets. This is good to know since the
US economy and stock market have yet to prove they can transition away successfully from a
strong dependence on large scale quantitative easing toward dependence on customary internally
generated resources.

With falling net per share and an elevated stock market, the S&P 500 is now trading just slightly
below 20 x latest 12 months earnings as the Fed prepares the next round of monetary tightening.
I have the market as significantly but not yet outrageously overvalued. 

Stock Market Sentiment

Market sentiment from a contrarian perspective is still running on the bullish side on one of my
favorite measures -- the equities only put / call ratio. $CPCE

When the 30 day m/a of the equities put / call starts running above the .70 mark, it is often an
indication that traders are growing too bearish and that it makes sense to look for a market rally.
Such is what happened at the end of Oct. this year when the market sharply reversed to the
upside following a genuine price correction, and I note that sentiment despite a strong rally is
still very subdued on 30 day m/a. Also, I note the 200 day m/a of the put / call ratio is rising
toward the .70 level. The last time the 200 day m/a for this measure rose sharply toward the
.70 mark was in late 2011 when it presaged development of a powerful up-move in the SPX.

Sour sentiment can get more sour, but I would at least make a note that we have not seen this
kind of  protective action by traders since the heavy pullback in 2011.

Gold Price

Amidst a longer term bear market, gold did have a couple of rallies in 2015. However, given the
inherent volatility of the gold price, playing on the long side has been barely worth the candle.
Gold Weekly

The gold bear reflects a substantial deceleration of inflation since latter 2011, weak commodites
markets, a softening of global economic growth in recent years and a sharp rise in the US dollar
since mid - 2014.

The chart is a classical bear market chart with gold having suffered two major price downlegs
since 2011and with the possibility of a third and final leg down in price to come some time ahead
a live option.

The global economy has been growing but not at all fast enough to push operating rates up to
counter significant global overcapacity. Moreover, ongoing financial stresses in the capital markets
have been mild and not broad enough to trigger a flight to gold. Global new business order rates
have been positive since Q 3 2012, but because of the magnitude of capacity overhang, excesses
are being corrected slowly via the painful process of plant closings and mothballing.

There are a couple of things that render gold worth keeping an eye on. The gold price is approaching
an oversold on intermediate term RSI, speculative long side interest is low and has plunged in
recent weeks and the USD is struggling to get above resistance at the 100 level (Top panel of the
chart).

SPX -- Daily

There was enough positive energy behind the SPX to see it push above resistance at 2100 this
week. SPX Daily

That it did not plainly suggests there is still overhead resistance in the 2100 area that the market
must plow through to move higher. So, if you are on board on the long side, you will have to wait
it out for a while longer and keep in mind this week's fail will get at least a few traders to explore
dumping some shares for the short run.

Oil Price

I have been trading the oil price for over 40 years. There has been more good fortune than ill. Yet,
over the past 15 months the track record on calling price has been no better than 50%. My estimates
for global oil demand have properly exceeded the consensus but the increase of supply has been well
above my estimates. Nowhere in time has this been more true than the past five months, when my
guess of a seasonal peak 2015 price of $70 a WTI bl. was way off the mark. Historically, when players
get the price of oil wrong, it is because of oil demand forecast errors rather than bad guesses on
supply.

Looking toward 2016, my guess has been that crude would average in the mid - $50s for the year.
I am not going to expend time trying to defend this now, but concentrate more on the oil price techincals
instead. I have made shifts in focus like this in the past and often they are helpful. So, let's look at
WTIC Weekly

Oil has been in a deep bear market since mid - 2014. The bear has been confirmed this year because
oil price rallies have failed to take out the 40 wk. m/a on two occasions so far. The price is modestly
oversold against the 40 wk m/a, and is turning to oversold on the 14 wk. RSI. There has also been
a positive but inconclusive turn on MACD. Note too that oil stock traders have turned a bit more
positive on the market in recent weeks ( XOI oil index in the top panel). Expectations for crude
have turned up in mild fashion and at this point, it is important from a technical perspective that
crude hold support at $40.

I have done my mea culpa and I am probably going to stick with this intermediate term perspective
chart in the months ahead.

US Dollar -- At Interesting Point

With the Fed now out of the business of QE, and with sentiment again swinging toward a more
nearly imminent "lift off" in short rates, the dollar is on the rise again to salute a prospective,
more full blooded tightening of policy by the Fed. $USD

What is interesting here is that not only is the dollar overbought in the short run, it has also formed
what could be a secondary top. It made a strong, momentum driven top in the spring, then corrected
moderately, and is now back up to near the 100 level on the index. Sometimes, this sort of process is
merely establishing a platform for a breakout move, and sometimes it signals that the index in
question is running out of gas and is setting up for what may eventually turn out to be a stronger
correction from what is becoming more formidable resistance. Check out the price action for
the USD over 2012 - 2013.

SPX -- Daily

As mentioned in the 11/02 post, the SPX was rather overbought in the short term, and as fate would
have it, it has hit a speed bump which has broken the uptrend based on closing prices. SPX

As shown, the market failed in its first test to hold above the newly regained resistance level of 2100.
It should come as no surprise if the SPX was to struggle a bit over the next week or two either through
consolidation or a search for short term support. It has come a long way in a short period of time.
There could be a test of the newly rising 200 day m/a which sits a little below the current level around
2080, or there could even be a more formidable pull back into the high 1900s, which would still
leave SPX in an uptrend captured by the very wide range seen over Sep. / Oct. A development of the
latter sort might alarm a number of traders, but it need not be alarming as it might be suggesting
the SPX is set to follow a modest, but volatile uptrend for a while. There is no forecast from me
here, just the outline of a couple of interesting possibilities to think about in the wake of a very
unsteady three month period.

30 Yr T-Bond % -- Observations

The 30 yr Treasury long term bull market has not yet ended. It reflects decelerating US economic
growth momentum in terms of industrial output and long run slides in inflation momentum and
short term interest rates. These same factors govern the trend slide in yields as seen on the chart.
$TYX

Recent data show production at 0.9% yr/yr, the CPI at 0.2%, and the 3 mo. T- Bill near the zero
bound. With a nearly stalled economy, no inflation to speak of and ZIRP, it is reasonable to put
the short term yield band at 3.00 - 3.50% for the bond to represent the premium for all the
unknowns in its prospective 30 year tenure. The bond market has become increasingly accepting
of the Fed's ZIRP over the past five years, and players have also bought off on the persistent down-
ward drift of inflation since 2011 and the slowdown in the growth of industrial output. Ergo, the
T - Bond sits at around 3% presently.

Over the next six months, if there is no further significant erosion in the price of oil and other
sensitive materials prices, the CPI could well "back into" a yr / yr level of near 2%, and the Fed
may move to raise short rates if there is also a modest improvement in real output growth. This
could lead to the sort of sharp run up in the yield % as was seen from 2012 to the end of 2013
when market players guessed (incorrectly) that large QE from the Fed would trigger faster
economic growth, accelerating inflation and an eventual abandonment of the Fed's ZIRP. But it
need not unless the real economy strengthens enough to convince investors and traders that the
US is experiencing  a positive reversal in growth of substance. So, I come out the door that
upward pressure on the bond yield will depend most heavily on the perceived sustainability of
of an improvement in real output growth.

At present, there are just a few hints the economy may soon get past the difficult period of excess
inventory experienced over the past several odd months, but that awaits some confirmation.
Naturally, if we do see a somewhat stronger economy in the year ahead, there should be enough
follow through on inflation to push the Fed to raise short rates gradually. If such occurs, it
may be necessary to scuttle the 3.00 - 3.50% yield band for the bond shown on the chart.

SPX -- You Folks Can Take It From Here

Back in late Sep., the SPX fell to its most oversold levels since late 2011. It has rallied since then
to a strongly overbought position currently. As an old guy who likes the occasional good trade, this
development was manna from heaven. So, I have taken the money and run. As I said when the
market went into its Sep. tailspin, I thought the guys jumped the gun because I could not figure out
a bear case. I conceded the market may have been overdue for a correction, but I did not see the
bear. I still do not, but also do not see the fundamentals as warranting a substantial and sustainable
upside from here. Since I would be happy with SPX 2160 by the end of next year, and since the index
has just topped 2100 again, I am pleased to book a large short term profit and take my chances that
the next 14 months will provide another opportunity or two to capitalize on a deep oversold.

The thinking here is that the easy, low risk, high return money has been made. It has been a neat
bull market from early 2009. The Fed is no longer providing the wonderful liquidity tailwind from QE
and the stock market is expensive on a valuation basis. There are some interesting bull stories that
are incubating now, but as Warren Buffet was fond of saying, this is a game where you are the batter
and there is no umpire and thus you can wait for your pitch. I plan to keep the blog going as before,
but when it comes to US equities, you now know where I stand.

SPX Daily

SPX -- Monthly

In posts on Feb. 27, and April 3, I called attention to the rollover of MACD on the SPX monthly
chart and how prior flops in this measure over the past 20 years presaged trouble for the stock
market. The rollover of MACD occurred as the first quarter of 2015 unfolded, and the SPX has
yet to recapture the 2100 level seen earlier in the year. SPX Monthly

My concern over the past year has been that on the rare occasions when very large QE programs
are brought to an end by the Fed, the stock market has suffered, and on most occasions, the economy
has as well. Point - to -  point, the SPX has been on the flat side this year, and the momentum of
business sales and earnings have eroded, with SPX net per share having gone mildly negative.

Because of the erosion of business sales and consequential profit margin pressure, one cannot say
yet with confidence that the economy has escaped this first round of strong tightening in monetary
policy and is readying to expand at a moderate pace. True, the evidence from the GDP accounts
reveals that real final demand growth has been sustained, with the volatility in performance heavily
reflecting a mild inventory accumulation / dis - accumulation cycle prompted by harsh winter
weather, the continuing effects of a strong dollar on export sales, and builds in hydrocarbon supplies.
What is troubling, however, has been the persistent decay in monthly economic data, with subdued
production and sales growth trumping reasonably good jobs and real income growth. But, so long as
jobs growth does not slow too quickly in the months ahead, the economy may be able to regain
better balance.

I outlined a mini economic and profits forecast back on Sep. 27, in which I posited that the US
economy and profits should improve. However, because the p/e on the market remains elevated,
I wonder whether the market has strong and sustainable upside from the current SPX level of 
around 2080 and whether, as the monthly chart shows, we may have already hit the peak in
the strong MACD progression in evidence over 2012 - 2014. This may be a conservative view,
but it is where the battery of indicators I work with leave me.

SPX -- Weekly

Fundamentals
The SPX is on the verge of an intermediate term buy signal, but there are issues. The market is getting
overbought short term, the Fed has a policy meeting this week, and we are about to enter a "bring on
the clowns" period in the nation's capital where spending bills are on the line, the US debt ceiling must
be raised, and where Speaker Of The House (Paul Ryan) faces his baptism. Upcoming as well, are
a bevy of PMI reports on business activity spanning the globe and info on China's new five year plan.
So, there could be some short run volatility to becloud the market outlook.

Technical
The market has responded positively and powerfully from the lows seen in Aug. and Sep. SPX weekly
The SPX has moved up and through its 13 and 40 wk. m/a's and although the trajectory is too sharp
to be sustained, the indicators are well below overbought levels when viewed over the intermediate
term (3 to 6 months). The signs do not of course preclude a disappointment but they are promising.

With the market having risen rapidly up to and through its 40 wk. m/a, my momentum oscillator is
about to turn positive from a deep oversold for the first time since the final quarter of 2011 ( I do
not show the oscillator on the chart, but it very closely resembles the MACD  which is displayed in
the first bottom panel of the chart). Looking back over more than 30 years of data, since whipsaws
in the signal come seldom when momentum is sharply depressed, the oscillator and the reversal of
the MACD should not be taken lightly. It is unfortunate that the MACD reversal has come only on
the heels of an already strong rally, which confirms the short run overbought in the market.

Stocks Rally -- Significant Test Ahead

With today's sharp rally, the SPX is fast becoming decidedly overbought on price momentum
with elevated RSI and MACD readings also ascending. Also of major short run importance is
the fact that the SPX is sitting right under the 200 day m/a. Failure to take out the "200" in short
order would normally be a good time for traders to take profits and may well have more
substantial negative consequences. Watch closely. SPX Daily

SPX -- Short Term

Deteriorating economic growth momentum and a weaker dollar has encouraged market players
to shift expectations of an eventual "lift off" in short term rates further out into the future and has
even prompted discussions about what options the Fed might have to ease monetary policy in a
in a ZIRP world. With bond yields so low and commodities and PMs remaining out of favor,
players have used a deeply oversold stock market to expand equities exposure. the deep oversold
condition has vanished, and with a variety of different concerns still nipping at portfolio managers'
heels, there has been a relatively strong but volatile rally from the Sep. '15 lows. SPX Daily

At present, the economic and profits outlook is rather subdued. A significant pickup in business
sales and earnings, should one occur, will bring the questions about when and how fast the Fed
might raise rates right back to the fore. In the meantime, players are again smitten with the "Rule
of 20" -- a valuation scheme that pegs the market's p/e ratio according to the rule that p/e = 20
minus the inflation rate. With inflation very low, adherents of the rule see upside in the market
even if profits growth is minimal. The "rule of 20" has been popular since the mid - 1960's and
is again filling in nicely in a slow growth, low inflation and interest rate environment. It is ok
to be leery of this type of thinking now, because it is a "thread the needle" argument in an
environment that lacks clarity and is risky in that the Fed has already tightened policy substantially
via shutting down QE a year back (the market is little changed from last autumn when the Fed
ended the QE program).

I have the market mildly overbought. It is trading below the 200 day m/a and to have reasonable
confidence that the current rally has staying power, the SPX needs to challenge the "200" before
too long and successfully break through it. I would also note that the VIX or volatility index
in the bottom panel has retreated maybe a little fast compared to the recent price action on the
chart.

Gold Rally

Gold has begun to fulfill my long held speculation that it could rally over Half '2, 2015. The
metal is on its way to a short term overbought on RSI and a rendezvous with the tripping point
resistance level up at $1200 oz. Gold Price

For more on gold fundamentals, scroll down to the 9/30 post.

SPX -- Weekly

Fundamentals
My primary fundamental indicator is still positive. The growth of monetary liquidity remains in a
downtrend but is not yet negative and short term interest rates have yet to reverse and go positive.
My weekly cyclical fundamental directional indicator has been flat now for a year. This indicates
a continuing economic slowdown and has likely bothered the stock market in the absence of further
QE which sheltered stock prices when it was in place.

Last week's strong rally reflects increased player conviction that an eventual rise in short term
interest rates has been pushed out further in time. The now weaker USD also lifts worry some over
the prospect for even stronger currency translation penalties to corporate sales and earnings.

The combination of global economic expansion and new evidence that excess productive capacity
is being shut in has not yet been strong enough of itself to put cyclical pressure on inflation, but a
weaker USD is lending some support to the oil price and selected other commodities. This factor
is relieving some investor anxiety about offshore economic and financial constraints attributed to
the sharp rise in the USD since mid - 2014. US equities players thus need to watch the direction of the
dollar more carefully than usual.

Technical
The near term weakness anticipated in the 9/26 weekly technical update proved very short lived.
A quickly ensuing rally eliminated much of the short term oversold position of the market and has
brought the SPX right up to occasional resistance at the 13 wk. m/a. SPX Weekly

The weekly SPX is close to a positive trend reversal if it can decisively take out the13 wk. m/a
soon. However, because it is short term overbought on a price momentum basis, an imminent
test of the downtrend in place is far from assured.

Tale Of The Tape: Stock Market

The Fed wisely put off raising the Fed Funds rate at its recent FOMC meeting. As a consequence, the
US$ has continued a modest downtrend, and this has sent mild risk - on signal to the markets. The
SPX has entered a correspondingly modest but volatile uptrend. SPX Daily

The 25 day m/a has turned up, and the VIX volatility or "fear" index has retreated from the late Aug.
spike up to 40 down through the technically important level to a more moderate 17.5 (bottom panel).
The market is now moderately overbought short term on a momentum basis at 3.1% above its 25
day m/a and in view of the spike in MACD. A fair number of traders would like to see another test
of the correction lows below 1880 given the extant volatility and the suspicion that even if the
market may strengthen later this year, the correction may need more time to run its course on a
seasonal basis. It hard to pound the table in opposition to this view. I am more interested in  how
the SPX will perform against its 200 day m/a when that day comes. This challenge may be a little
ways off, but when it comes it will be important, since failure to take out the "200" would be a
bearish signal.

Profits Indicators

My US corporate sales growth momentum indicator hit an interim peak of  7.1% yr/yr in Jul. 2014.
Since then it has declined to 1.1% yr/yr currently. The sharp loss of positive momentum reflects
slowing physical volume growth in general, a continuation of a deterioration in product / service
pricing power, a stronger US dollar (translation losses) and the sharp erosion of oil, gas and
sensitive materials pricing power. Note, as well, that global industrial output has slowed from
4% yr/yr down to 2% over the same period.

Normally, such a quick slide in sales growth would lead to substantial downside pressure on net
per share. SP 500 earnings have been declining from an annual rate of $117 per share to about $108
presently, but matters could have been much worse. However, the fall in oil and gas revenues and
in basic materials sales has resulted in significant cost reductions and profit margin improvement
for the many businesses that are net users of such products. Net users of oil, gas and basics manage
to generate 4% sales growth as a group and have seen improvement in selling price / cost ratios. On
top, a number of SP 500 companies have benefited from share buybacks.

Weekly and monthly leading economic indicators do not yet suggest a positive turnaround in SP
500 net per share, and the final calendar quarter estimate for 2015 now looks vulnerable. As posted
below on 9/27, I am expecting to see much improved business sales performance as the economy
moves through 2016 and as the substantial excess liquidity in the economy presently is turned into
higher transaction levels. The risk here remains the same as I have highlighted for a year, namely
that the economy must successfully transition away from dependence on QE liquidity to the ample
private sector internal and credit resources available to it already. The potential for stronger business
performance is surely there. Very soon, business will need to take a collective deep breath and have
the confidence to move on and up.