SPX -- Daily

As posted on 2/22, I urged caution on the SPX breakout given that it had become significantly
overbought short term. I have also argued that price breakouts from short term consolidation
periods can sometimes whipsaw. And, this is what has come to pass. SPX Daily Nasty business
for the follks who were enticed by the breakout.

With the recent sell off, the SPX is right above intermediate term trend support at 2040 and has
broken modestly below longer range support dating back to late 2011. (The market has had
several breaks below longer term support, but all have been minor and were remedied quickly
by subsequent rallies.)

The SPX is now mildly oversold on a price momentum basis and the RSI measure is headed
down to an oversold reading as well. With the recent weakness, the index is now down into the
middle of the 2000 - 2080 range that has mostly held sway since Nov. '14.

The proximate cause of the sell off in Mar. was the stronger than expected jump in jobs
which has triggered concern that the Fed might elect to finally begin to raise rates at the
short end. The Fed has been suppressing short rates for a while and the one item on Their
current checklist -- inflation that is too low -- has yet to turn. More broadly though, it may
be too early for the markets to speculate on rising short rates. As I have suggested several
times over past months, the end of QE 3 would lead to a curtailment of liquidity growth and
a slowdown in real economic progress. Since Aug. '14, all industry new order PMI has
fallen from a very strong 65.9 down to a still positive but more modest 54.6 Complicating
matters are the effects on general business activity from the prior west coast dock strikes
and another snowy and bitterly cold winter in the eastern third of the US. The very recent
action of the stock market suggests players see labor issues and the bad weather as temporary
pressures on growth and that with springtime there will be enough of a bounce back in the
economy to keep worries elevated that the Fed may begin to end Its ZIRP.

The lack of clarity on how well the economy will do short term and the prospective
continuation of low inflation may leave players guessing on Fed intent for a brief while and
since I am almost always reluctant to engage in divining Fed intent, I do not plan to shift
primary fundamentals away from a still positive view.