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