Stock Market -- Fundamental & Technical

Funamental

The SP500 Market Tracker remains fairly valued at 1550 - 1560.
I doubt I'll review the Tracker again until Q2 '07 eps reports
are more nearly complete. With the SP500 closing today around
1483, the market is getting cheaper, with concerns about
decelerating liquidity growth a main concern. Data through
mid-July shows that my broad M-3 proxy has been flat for the
past six weeks. This kind of shortfall does not always bother
the market, but it appears to be a source of concern now.

I note as well that the Fed drained liquidity over the past
week, so sell offs in certain markets are not scaring Them, yet.

Remember, the bigger earnings estimates for 2007 are back loaded,
with a sizable step-up in earnings power envisaged for Q4 '07
and running into 2008. The economy needs faster growth and a
stable inflation environment to provide a big long side trade in
the months ahead. So far, capacity growth may be too small to
support faster growth without more inflation pressure.

Technical

The market did respond to the improvement in fundamentals from
06/06 through 06/07, but it strained technical measures and
rules of thumb in doing so.

Short term, the market is unstable and further weakness cannot
be ruled out. I think it would be dumb to think the SP500 just
could not sink 10% off its high down to the 1395 level with players
worried about liquidity and how to "properly" re-price assets for
more risk.

For now, the market is moderately oversold. A more interesting
oversold for the SP500 would be around 1460-65, where it briefly
touched today. A successful retest of that low would clarify the
outlook.

Since I have but a very few "turn on a dime" technical indicators,
I am willing to give the market a week or two to sort itself out
before considering positioning.

I have been cautious on the market this year, concerned that a pick
up in the economy might bring some re-acceleration of inflation that
would dampen the p/e multiple. That test is still ahead, and I have
passed up some good trades in the interim. But, I like to be on
familiar, comfortable ground when trading and so far this has not
been my year.