Stock Market

The short term uptrend in the SPX broke late last week, but the market has hung modestly
above a rising 25 day m/a, so despite the trend line warning, it is still technically rising. The
SPX is trading steadily in the bottom half of the band set in Jun. 13 but it has not broken
down. Price momentum has been barely positive in recent months and there has been more
whipsaw action. The SPX has been bending but not breaking, and to celebrate, the VIX, or
volatility  index, has been trending down to very low levels signifying rising confidence.
SPX Daily (VIX index in bottom panel).

The Fed's QE program is subject to steady tapering and it appears it will zero out before
the end of 2014. Clearly, momentum players have lightened positions in their favorite
momentum stocks and that could drag on intermittently as QE winds down. On the plus
side, the private banking sector is providing more credit which it must do if the economy is
to grow once QE is over. The focus on QE has been strong enough that it is tough to tell
how mindful investors are of a positive transition from monetary stimulus to credit.

Monetary liquidity growth, although starting to fade, is still strong enough to drive faster
economic performance this year, but realistically, we have yet to see that. This means that
the stronger earnings projected for 2014 are under a little cloud. Investor patience does
remain buttressed by continuing very low short term interest rates and an inflation rate that
is not threatening to the p/e multiple.

The QE taper experience has the US in an experimental situation and as far I am concerned,
the market is holding up remarkably well given that there are risks in the environment that it
is very difficult to quantify as we move to a flat Fed balance sheet.