SPX -- Weekly

Fundamentals
Since the termination of the QE 3 program became a done deal in Sep. 14, the positive momentum
of the SPX has deteriorated along with the growth of total system financial liquidity and the real
economy. Liquidity has continued to fade in growth, but with inflation so low, the capacity of the
real economy to progress has not been exhausted.

My forward looking weekly cyclical fundamental indicator has been diverging internally. The
indicator, excluding sensitive materials prices, has flattened out since last autumn, while the
industrial commodities composite, which includes spot oil and fuels, has weakened considerably.
Continuing excess production capacity in China has also suppressed the index, and since China
is the largest user of cyclically sensitive materials, the behavior of the index overstates the case for
slower US economic performance. Even so, the short term leading indicator composite favors
slower growth ahead with relief from another severe winter east of the Mississippi likely to soften
the blow.

the big story for the market since late 2011 has been the sharp elevation of the p/e ratio as investors
have used nominal short term interest rates and sharply decelerating inflation to boost valuations
across the board circa the behavior of the market the through the mid - 1960s. There has been a
broad boost to investor confidence so strong that the "buy the dips" mentality has been in force for
over three years. It has only been recently that the willingness to push the markets' p/e higher has
been challenged via the termination of QE 3, the prospect for flatter earnings and, now, stronger
speculation about whether and when the Fed may abandon Its ZIRP.

Investors must now assume significantly higher risk to stay in the game on the long side.

Technical
The SPX is not materially overbought on a price momentum basis, but internals such as RSI and
MACD show a pattern of steady but graceful deterioration from exalted levels set in mid - 2013.
The pattern of graceful unwinding of the enormous overbought weekly readings set back in '13
are powerful testimony for investor confidence and determination to stay in the game on the
long side. Historically well founded technical warning signs have been ignored and only folks
who have heeded them have paid the price. SPX Weekly

To hold the longer run trend from late 2011, the the SPX needs to finish out this month above or
close to 2100. It is possible the eagerly awaited FOMC meeting and subsequent Yellen press
briefing  this week will have significant bearing on whether the market holds trend near term.
Interestingly, extending the trend line through Jun. gives an SPX reading of 2200. Another
substantial challenge for the bulls.