Stock Market -- Short Term

Technical
Following a suspect and uninspiring bump up over the 5/19 - 5/29 period, the market has resumed
the downtrend. It remains moderately oversold on a price momentum basis and is approaching a
short term "sold out" position, with only a very short interval of acute selling pressure on elevated
volume needed to signal a more durable low zone. The SPX has entered a pivotal area of 1275 -
1250. A decline through this area would throw open the question of a break away downer. SPX

Fundamentals
The weekly fundamental cyclical indicator (WCFI) has accelerated mildly to the downside
over the past two weeks reflecting further weakness in sensitive materials prices and a slight
edging down of the weekly coincident indicator (10 discrete data series).

The Fed continues to hold the line on expanding its balance sheet and is actually running about
$25 bil. below the level of 6/30/11 when QE 2 was completed. The time is approaching when
this extended flatness in Fed Credit will force me to downgrade my core stock fundamentals
indicator as well as the longer term outlook for the economy (More later this week).

Demand for currency swap lines from abroad remains quiet despite the Euro area hub bub.

Risk Off vs. Risk On
The global economic expansion is at greater risk than it was in the spring / summer seasons of
2010 and 2011, when preference also swung from risk on -- stocks, commodities, oil etc. to
risk off -- Treasuries, German Bund, USD Global PMI - Mfg. However, many of the risk on
assets are oversold while a big risk off favorite -- Treasuries -- are extravagently overpriced
on a longer term basis. I strongly prefer simply to be in cash and equivalent than the risk off
choices and I also think concern about the US economic position is currently overblown ( the
household survey portion of the employment report which, although volatile, does lead the
payroll portion showed 422k new jobs in May, and the US PMI for mfg. gave a strong 60.1
reading for new orders). Finally, there is another formal EU summit on tap for late June, and
officials who want to see the EU accelerate the process toward fiscal union are coming out of
the woodwork with dire messages to hold a torch to Mrs. Merkel's ample butt to move
forward with a plan to keep the EU together. Even guys like George Soros and other economists
and pundits are getting into the act. Not easy to stand tough when the world is laying its troubles
at your doorstep.