The SPX has broken above 1850 resistance and has moved on to a new all time high. The
market is moderately overbought in both the short and intermediate terms. Looking back
through the end of 2012, it has reached a level in the short run when positive price
momentum ought to begin to roll over although the SPX can continue to push somewhat
higher. SPX Daily Chart
A study of the indicators shows that the near term overboughts have not been that hard to
short over the past 14 months, although the rewards of shorting have not been very rewarding
relative to the risks assumed given the strong trend of the SPX.
Viewed longer term, the SPX is on an unsustainable trajectory that continues to be fueled
by the Fed's QE program, which although shrinking, remains a potent force. The loss of
momentum in the growth of monetary liquidity has yet to show persuasively that it will be
a constraint on the SPX p/e multiple, although the market is up just 1.4% year to date.
The weather seems set to improve seasonally, so we'll soon see the bounce back potential
in the economy realized, even if modest (Since grandson and I have had to use a sledge -
hammer to clear the drive and deck of ice, I can assure you it has been a tough winter).
The SPX is trading around 17.4x estimated latest 12 months net per share. The market
commands a premium for cyclically elevated earnings even as the US economy has yet to
be tested on how well it may perform once QE is done and reliance on private sector credit
becomes more crucial. It is expensive, so each of you have to determine your comfort
level.
Since there's no way I am getting up at four a.m. to look in on Ukraine and the happenings
there, I'll have to take the volatility in the markets as it comes along.
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