Stock Market -- Short Term

The market experienced a powerful move up from the late Nov. '11 low and also when measured
from the lower, earlier Oct. '11 low. Most recently, the SP 500 is showing an overbought in the
short run and has been kissing important resistance at 1350. SPX

This is not an easy situation. The SPX has run well out ahead of my weekly cyclical fundamental
index since Oct. '11. The fundamental index is up nicely, but has been running less than half the
22.8% run up in the SPX since Oct. However, the trajectory and the breadth of the advance are
far more akin to a fresh upleg than a blow off with a dim future. In fact, the SPX could advance
another 5.5% up to 1425 over the next month or two before it turned overbought on my longer term
indicators.

Now, the chart also shows a welcome dimunition of volatility over the past couple of months.
However, the structure of the rally still leaves open the possibility of a return to significantly
increased volatility (Draw a trend line up with touches at the Oct. and Nov. lows.) As well,
the recent strong rally has mostly to do with restoration of the p/e ratio and much less to do
with near term earnings expectations, which remain tame.

So, for now, I am stuck looking for some additional testing of SPX 1350 resistance over the
next week or two and having to hold my breath on how deep a retracement could come if the
market does not blow through 1350. Not especially definitive you say? Well, you play it as it
lays.