Stock Market -- Longer Term Technical

The downward break in the market this past spring was not deep enough to wreck the cyclical
uptrend off the Mar. 2009 low. By the same token, the advance of the SPX will again be suspect
if it does not clear the Mar. 2011 approx. 1420 prior cyclical high in decisive fashion over the
next couple of months and if it does not close out 2012 around the 1500 level. From a technical
perspective, you need to keep the market on a tight leash now because we have already seen
three distinct upwaves off that Mar. '09 low and we are now in a possible "bonus" situation
where there could be extra upside which would force a revised "wave count" should the market
continue to trend higher.

The monthly chart shows the SPX is now in a more mature cyclical phase when you consider
the MACD and price momentum indicators. SPX 10 Year Monthly Chart Notice how MACD
has flattened out and note also the deceleration of price momentum, both following the powerful
early phase of this cyclical advance.

How might we get into a "bonus" situation given especially the recent slowdown of the economy?
Well, the first thing to keep in mind is that the US economy still has ample slack in the facilities
operating rate as well as in labor supply. Moreover, there is no cyclical acceleration of inflation
or sustained upward pressure on short term interest rates that normally point to expansion peaks
and market tops. But the economy is running low on broad measures of liquidity, and without a
new, strong round of QE by the Fed or broader, more rapid private sector credit growth, the
economy is going to be left to operate off of internal fundamentals -- aggregate real wage growth
and business cash flow generation. Currently, gross real wage growth  is running at 2.2% yr/yr
with most of this reflecting job growth while business cash flow growth is now moderating
following a powerful recovery run over 2009 - 2011. So, on balance cyclical risk to the
economy is now on the rise despite the evident slack and absence of more normal pressures
that would signify overheating. The Fed's big gamble of resting QE thus rolls on.

How about the fiscal cliff, or the potential for higher taxes and mandated federal spending cuts?
In my view, it's just too early to tell now.