Stock Market -- Short Term

Technical
I warned in an understated fashion in the post below that the bears could get burned in this kind of
saw toothed advance and so they did. The market is building another "tooth" up, has taken out
earlier short term resistance, is showing  better price momentum, and even a little more volume.
SPX Chart

Today, the boys also rotated strongly out of Treasuries as the bottom panel of the chart, which
features the 30 yr. price, shows. It's been a few weeks since we last saw that kind of move and
it suggests an uptick in risk appetite as the week closed. Further rotation of this sort would
suggest increased staying power for the stock rally.

The $SPX has moved up to a 2.5% premium to the 25 day m/a. The guys have been clipping the
market up around 2.7% or slightly higher.

Short Run Fundamentals
My weekly cyclical fundamental indicator is showing further strength since making an interim
bottom on 6/22. A key factor in the improvement is unemployment insurance claims which have
dropped sharply here in July. Since a number of economists think the improvement may be
overstated for seasonal reasons, it is not clear how much of a factor weekly economic data are
in support the rally.

Federal Reserve Bank Credit is a little below where it was on 6/30/11 when QE 2 ended and
is down a little more in real terms. In my view, with private sector credit growth so modest,
the absence of any QE adds to fundamental risk for the market.

The Fed and The ECB -- Set To Gin up Liquidity?
A rising stock market with contested fundamental support suggests players are expecting either
a freash easing program by the Fed next week or stronger hints of same. Moreover, ECB head
Mario Draghi is talking BIG about new measures to provide liquidity to the EZ soon. First,
he has to take on the curmudgeonly, party pooping Bundesbank early next week. The latter has been heavy on the "nein" when it comes to outright buys of weak EZ sovereigns, so Mario has his
work cut out for him. Since both the US and the EZ are short on liquidity in my view, I do not
object to Ben and Mario pressing for more ease especially with fiscal policy moribund for now.

The issue for the market near term concerns how these central bank meetings and possible new
plans shape up. The evidence clearly suggests expectations by traders are running pretty high.