SPX -- Monthly

Fundamental
My primary indicators are built around monetary liquidity and the direction of both short and
long term interest rates. There has been some deterioration in the liquidity sphere, but, by and
large, the primary indicators still support the bull.

As presaged by the tapering of and then completion of the Fed's QE 3 program, the pace of
economic growth is slowing, but private sector credit growth is strong enough to support
moderate progress in real growth, and with continuing deceleration of inflation pressure,
there is even a modicum of excess liquidity in the system, the Fed's flat balance sheet
notwithstanding. SP 500 net per share has taken a hit in the energy sector on weaker energy
prices but pricing power excluding hydrocarbons has also eased. Net per share for 2014
may have come in around $112., and could well be flat this year as lower oil and gas prices
will prevail on a comparative basis. The stock market has continued in the strong positive
trajectory established in the latter part of 2011, so through Feb., there is scant evidence of
great concern about flat earnings.

The powerful idea behind the market's advance in recent years has been to push up the p/e ratio
on the premise that low inflation and interest rates entitle investors to reduce the rate of return
hurdle or discount rate to warrant continuing to invest (Interestingly, some larger pension funds
are taking higher pension expenses because actuarial rates of return are regarded as too low
for the long run.) The combination of an elevated market p/e ratio and prospective flat earnings
does diminish the current appeal of the market's risk / return profile.

There is sufficient capital and resource slack in the system to envision continued economic
expansion through 2016, although reduced business pricing power has to be watched carefully.
For the Fed, there is little economic point to raising short rates until pricing power improves.

Technical
the monthly SPX chart shows a cyclical bull market in progress, but notice particularly the
warning being flashed by the monthly measure of MACD.  The chart rollovers in this measure
have been dangerous in the past. SPX monthly

Russia....

Russia remains a high beta way to play the oil market. However, with Putin in the process of
taking his nation around to the dark side of the moon, there are much cleaner US based plays
around to trade oil and oil field equipment to bother assuming the risks involved in Russia's
latest progressive disengagement from the West. The Russian propaganda programs are in
full swing and it will become more difficult to get reliable information about the country.
Moreover, the current economic downswing there plus the difficulties involved in maintaining
value in the ruble could eventually lead to regime tinkering with capital flows to and from the
motherland as in the old days when even the central bank blew a few safes. I sill love the
music and the other arts in Russia, so it is with regrets that I take my leave. I am guessing that
this latest political retrenchment will take some time to play out and am hoping that it will
not turn too much darker....

RSX

SPX -- Daily

The SPX has broken out to a new high along with improving breadth and o.k. volume.
Breakouts from shorter term periods of price compression can sometimes trap traders with a
head fake, so it might pay to be a little cautious especially since the SPX is up about 2.8%
from its 25 day m/a for a moderate overbought on a price momentum basis. Positive reversals
in both RSI and MACD are welcome developments. SPX Daily

I am following this uptrend off the the mid - Oct '14 base which I regard as a fresh starting
point after the end of QE 3 sell - off. The range of the trend I am using is now set at 2020 -
2130 which allows for more short term upside. (This view is entirely at my discretion and
does not follow strict technical analysis protocol).

Oil Price -- Let The Battle Begin

Veteran oil price traders know that the oil price is nearing the seasonally strongest period of
the year at February's end. At this time, seasonal demand for oil is set to strengthen sharply in
anticipation of the the onset of the "driving season" in the northern hemisphere when the call
on gasoline flares up. With evidence that the North American rig count is falling, some traders
have begun to establish long positions in the expectation that a sinking rig count signals an
eventual drop off in now fast rising new US field crude output with the upshot that production
excess will be curtailed, thus leading to the restoration of improved balance between supply
and demand. This move is underway despite trader awareness that US crude inventories are
now very high for the past quarter of a century and 16% above comparable 2014 levels along
with the knowledge that production excesses could grow larger before enough wells are
capped to reverse the process. It is perhaps important to note that the stats on the NA rig count
are not at all dinky. Working rigs are down 27% on a y/y basis.

Long side confidence is being boosted by the fast coming onset of the rise in seasonal demand
to peak levels later in the year. We do not know yet whether this confidence will hold over
the course of 2015 as domestic crude output and inventories rise further. It is too early to tell
yet whether the recent anticipatory rally will have staying power or is a mere dead cat bounce,
and it is early in the game to determine when the price recovery, should it proceed further, will
lead to a positive reversal in the rig count which would dent the bull case. WTIC Daily

From a technical perspective, there have been positive reversals in shorter term RSI and MACD
and the market is challenging its 50 day m/a. Moreover, WTI crude remains at a sizable discount
to its 200 day m/a. And, check out the powerful long side volume. The should gain credence
if crude rises above $54 and begins a positive trend reversal. In addition, any sell-offs in the
short run need to be contained in the mid - $40s.

There are enough moving parts in the equation, both fundamental and psychological, to make
an extended time long side trade plenty risky.

If the market is truly poised to return to significantly improved balance, then a price of $70 bl.
by the end of Q 3 would not be unreasonable.
 

Long Treasury Bond

My long Treasury price directional indicator has trended positive since the spring of 2011.
The major pluses within the indicator have been declining commodities prices (including a
weaker sensitive materials price index) and a substantial deceleration of consumer price
inflation. The indicator gave a false signal in 2013 as investors grew concerned the Fed would
end both QE 3 and Its ZIRP and pushed the bond price down. But those concerns were allayed
last year as the Fed stood behind its ZIRP and ended QE 3 gradually. The continuing positive
outlook picked up some turbocharged action over the second half of 20i4 as the US dollar
surged in relative value. TLT long Treas. Daily

Although Treasury price fundamentals have continued to improve, there are a few
disconcerting factors evident. As the TLT chart shows, the bond price has gone parabolic. Also,
the long T has gone to a rather hefty premium to its 200 day m/a, thereby suggesting a major
over - bought. Note too, that horizontal green line at 105 is roughly equivalent to a 3.5% yield,
which suggests marginal long term value given a longer run inflation rate of 3.2%.

If the inflation continues very low or even dips into deflation, and short term rates remain close
to zero, the bond can still be traded long from time to time. However, I am not ready to concede
that outlook. I see the Fed as as now suppressing short term rates and, even though the economy
has remained well -balanced in terms of economic supply / demand, continuing economic
expansion may well bring up operating rates just enough to foster a cyclical acceleration of
inflation. Although the "inflation is dead" camp continues to beckon, I do not choose to buy
off on that idea just yet.

SPX -- Weekly

Seen weekly, the SPX continues in the sharp upward price channel it has maintained since the
autumn of 2011. The market has become much more shaky in terms of holding trend, but if
the SPX can close out Q1 '15 above 2100, it will remain on a strong positive track for 2015.
SPX Weekly

Note the deteriorating trend in MACD, RSI and yr/yr weekly rate of change. Note as well that
the SPX premium over its 40wk m/a has decelerated visibly on the chart. From a historical
perspective, the lengthy unwinding of these measures without a serious and sharp break for a
price correction is seldom seen. The market has continued to bend without breaking down.

Cumulative advance / decline is losing positive momentum, but did hit a new high this week.
This NYSE indicator compares very favorably with even broader  measures of the stock market
which reveal that only roughly 50% of all issues are in discernible positive price patterns.

Among major stock markets, the SPX has been the big game in town over the past couple of
years, but since the start of 2015, the global equities market sans the SPX has improved sharply
in relative performance  despite relatively favorable US fundamentals. It is worth noting that the
world market excluding the US is displaying an RS line vs. the US that is rising sharply
from deeply oversold levels. Moreover, even if this represents only a counter trend  rally
for global equities, it could easily last 3 - 6 months, thus offering stronger potential abroad
both for stock pickers and market macro players. MSCI World Ex. US vs. SPX

Stock Market -- Short Term

Following the big autumn swoon and subsequent powerful rally to new highs, the volatility of
the market has calmed some and the pattern has fallen into a period of whipsaw action that has been
drifting very slowly toward price compression. Despite all the pivots up and down, the SPX has
managed about a 7.5% annualized return over the past six months but has been drifting mildly
lower since the end of 2014. Uptrend lines have been violated, but the market has not been able
to sustain a break as investors and traders struggle to find solid footing. Periods like this do
ultimately resolve but it is rarely clear how they will, and to make matters more complicated,
the first move out of the range can turn out to be a head fake that traps the eager.

There will be no conventional sell signal on this market until both short and long interest rates
start to rise, and monetary liquidity growth becomes considerably more constrained. Moreover,
there remains a goodly number of players out there looking for the p/e ratio to continue to
rise on low inflation and interest rates no matter how humble progress in earnings turns out to
be. As well, investors are factoring in additional liquidity from the transfer of wealth to the
US as a net consumer of oil and as time passes, analysts will continue to point out that net
petrol consuming companies will have bottom line benefits to offset declining earnings from
the net oil producers.

On the other side, the mantel of significant QE has been passed to Europe and Japan, and,
without  the US QE tailwind, some players are concerned by the recent slowing of US economic
growth momentum. Moreover, there is growing interest in major markets such as the EU,
Japan and China. Finally, both gold and longer dated US Treasuries have been attracting funds
from the US equity market.

The environmental background reveals enough pluses and minuses to keep US equities
players guessing and second guessing. SPX Daily Chart