SPX -- Weekly

Fundamentals
With QE expiry imminent, stock market is crossing from easy money bull with high return /
low risk profile to mundane bull with sharply elevated risk profile.

Market momentum has devolved in 2014 from powerful as seen last year to a far more modest
positive pace reflecting a lengthy adjustment to the wind up of QE. Further volatility and a
continuation of a downward adjustment cannot be ruled out given the evidence of prior periods
when large QE has ended.

Weekly Cyclical Fundamental Indicator is in a positive long term uptrend but a sharp interim
uptrend from Oct. 2013 broke down in Aug. and suggests lower business sales and profits
growth ahead.

Investor Psychology
Spirits have been lifted since J. Bullard, head of the St. Louis Fed, floated the idea last week
that QE could be extended in a more modest form. Bullard is not in the voting rotation this year
for FOMC and his idea would trigger a shit storm of conflict on the Board without evidence
of a critical economic need for further easing.

 Investors and traders are also keenly interested in the idea of seasonal strength from Nov.-May.
This rule has a good track record over the past half century and will have players carefully
watching.

Technical
With the Bullard comment, the market has recovered broadly from a short term oversold
on good volume. History shows that spike bottoms like we saw in the prior week have no
more than a 50% chance avoiding a retest.

The weekly chart of the SPX shows that the market has corrected down from a very extended
position and is no longer strongly overbought. SPX Weekly

Players who have low risk tolerance should note that the full universe of public issues still
shows that too many stocks are still in negative patterns with no positive MACD cross.

My three - six month momentum measure has been on a sell signal since early Sep. '14. This
measure has an excellent long term track rcord but has tended to whipsaw since mid - year
2013 as the "buy the dip" crowd has been very aggressive on knowledge the Fed stood behind
them with dollops of QE. It will be interesting to see whether the dip buyers prevail again now
that QE is expiring.