Stock Market -- Weekly

The cyclical bull market continues with a lift in recent weeks out of congestion to a new high.
The market is moderately overbought relative to its 40 wk. m/a at a 6.5% premium. RSI has
reversed positive but without a pull back of consequence this year, The SPX RSI is again
approaching an overbought reading. The MACD has reversed a downtrend in place for most
of the year, but remains high by long term standards. Even so, a 12 wk. MACD does not
whipsaw that often. SPX Weekly

The bottom panel of the chart shows the VIX or volatility index. The current very low reading
of 11.40 suggests a high degree of complacency among traders and investors. Unfortunately,
the VIX may not give much warning of impending trouble by rising with the market. In
recent years, it has tended to lurch up when sentiment changes, and now, it may need to speed
up to 20 before the caution light goes on for many players.

The red horizontal line at SPX 1800 signifies when the SPX is hyper-extended on a very long
term basis. The SPX is now nearly 7% above that line and suggests that price risk is very
high and rising. I have never been long the market unhedged during the very few intervals in
history when the SPX is so extended. The green horizontal line at SPX 1485 gives its value
16.5X long term trend earnings which is currently $90 per SPX share. Investors are thus
paying a nearly 30% premium for cyclically elevated earnings. It is an expensive and risky
market.

My weekly cyclical fundamental indicator (WCFI) is up about 5.5% this year to date compared
to a 4.1% advance for the SPX. The stock market trounced the performance of the WCFI from
its deep interim low in 2011, but so far this year performed more in line with this forward
looking indicator. this may be happenstance, but so far in 2014, the market has payed much
closer attention to fundamentals on the ground than in recent years when SPX momentum
more naly matched the power of the Fed's QE program.