Stock Market -- Weekly

Fundamentals
The Fed has in effect laid out a plan to return monetary policy to normal operations by
sometime in 2015. This would include elimination of the QE program via the tapering
of asset purchases and the elimination of the ZIRP. Assuming moderate economic growth
over the next 12 months and a degree of cyclical inflation pressure, the Fed will find itself
behind the curve in starting to raise short term rates next year. News of the shift in Fed
thinking has been cumulative and the stock market has been able to muster only a 0.5%
gain on the year through 3/28.

There remains sufficient slack in the US economy to drive economic growth right into
2017. After a year long informal holiday, the banking system is again responding to rising
loan demand, a response that will likely prove essential to supporting economic growth as
the QE tapering process eventually zeros out the inflation of the Fed's balance sheet.

Because the bad winter and so far lousy spring weather retarded growth, it is not clear yet
that the economy can sustain a moderate level of expansion as QE winds down and it is
thus not clear whether the Fed would end ZIRP even by as late as 2015.

If all goes according to the Fed's estimates and plans, the policy of easy money probably
has another 12 to 15 months to run before it officially ends. Moreover, the stock market
has shown a tendency to rise until the yield curve flattens out. A flat yield curve could
well take a couple of years beyond 2015 to develop fully.

The market has lost some players to the QE taper program and it may also be losing
some players who wish to use a better US and global economy to start to diversify away
from US stocks -- the performance bellwether since late 2011. Other investors may
grow cautious because the initiation of a program to boost short rates by the Fed can
produce a classic market correction. The hard core bull cadre will desire to join in
trying to push the market higher until the easy money policy officially ends.

The flattening of the SPX so far this year reflects these crosscurrents as neither the more
cautious of investors nor the bulls have been able to cleanly gain the upper hand. If the
economy performs alright, there could well still be a battle over an appropriate p/e ratio for
the market.

Technical
The SPX has lost momentum, the uptrend since late 2012 is getting shaky, the indicators
are fading and the VIX has elevated slightly. Even so, the market has bent but has yet
to show a break. For example, note that down moves of consequence have not occurred
until the MACD structure falls below + 25. SPX Weekly Quite something.