Oil Price -- Weekly

The oil price is experiencing its strongest year end close since 2012. This is happening despite
the fact that Oct.-Dec. is a very weak seasonal period. Fuel demand may have picked up some,
but the major reason is that traders have developed conviction that the OPEC-Russian supply
cut deal will hold going into 2017. Compare this year with last year when the price went into
free fall.  WTIC Weekly

The consensus for the WTIC trading range going forward remains at $40-60 bl. Price targets for
the seasonally strong spring of 2017 are starting to inch above $60, but most players are behaving
in a reserved fashion because Jan.-Feb is a seasonally weak period and since consensus supply
data for the final quarter of 2016 is not widely available. As of now, net oil producers are enjoying
a strong rebound in per barrel realizations compared to last years' disaster.

Production cut accords nearly always involve cheating so producer output data out ahead will be
carefully reviewed to determine if there are threats to the basic agreement. Traders will also be
watching US supply and the rig count to see if this now important new swing sector will inhibit
price recovery next year. Breakeven for the entire industry remains around $55 a bl. so deals are
out there if recovery progress holds.

The oil price is currently in a cyclical rebound stage with ascending tops and bottoms amidst
the usual volatility. WTIC is mildly overbought and is at a healthy premium to its 40 wk m/a.
One trader concern is that long side speculator interest is at record high levels just as it was in
in latter 2014 when crude made the important interim top of $105. Let's call it a very crowded
trade.

SPX Weekly -- God Rest Ye Merry Gentlemen

We may well need that rest for 2017. Even the bulls are concerned that the Jan.- Feb. period may
bring some corrective action as Trump rolls out his programs and tweets it all out with an official
imprimatur. And, the Fed will be around, too. The kindling has already been tossed into several
dumpsters as well. There is a nuclear arms one, and several for China, including the one China
policy, and the prospect of tariffs. Immigration policy will get a few, especially since California
is sending ominous signals of resistance, and there will be a chorus of loudmouths in the cabinet
and advisors like Carl Icahn to set off a couple of dumpster blazes. With the Donald, conflicts
of interest will be the norm, and the issue of high crimes and misdemeanors may eventually
arise if the GOP happens to reach a point where its fortunes, now seen as good, are threatened.
Pence will be viewed  as fine in a severe pinch.

Fundamentals
Weekly cyclical fundamental indicators continue to trend up, and the economy finally showed
signs of stronger growth in Q3. Hardly all is well yet. On a monthly basis, my proxies for total
business sales are doing a little better but expansion is still a bleak +1-2% yr/yr. Corporate
profits, helped by higher fuel prices for oil and gas producers, are recovering. The weekly
indicators, which the market has followed carefully since Feb., promise more growth as well as
inflation to come. Absent argument about valuation, these are positives.

Technical
The post-election rally has proceeded damage-free and has only been encumbered by recent
consolidation. The Dow 20K baseball hats sit at the ready in a NYSE storeroom. The up leg in
the market since Feb. is extended relative to its trend line and is moderately overbought at 6%
above the 40 wk. m/a. RSI and MACD are directionally positive but are approaching overbought
territory. Continued consolidation in the SPX or worse next week would fracture the post-
election trend up and raise eyebrows.  SPX Weekly

Stock Market

Consensus View
The e-inbox is stuffed with market forecasts for 2017. Based on a rather broad survey, seers
are looking for the market to range between SPX 2300 - 2500 for next year, with 2400 a suitable
mean. the hope is that a Santa rally will allow the market to close out this year at new highs. A
popular idea is that corrective action will set in sometime shortly after the new year as skirmishes
with Congress are set off after the inauguration when Trump rolls out his fiscal policy programs
and his cabinet appointments are debated. However, the overall view is that Trump will get the key
tax elements of his program through and that the economy will thread the needle in the new year
via moderate economic progress that is not sufficiently rambunctious to trigger off a sharp rise
of inflation or nasty action by the Fed. Because economic growth will not be that strong, we will
witness a sort of dwarf goldilocks economy. Presently, economic indicators are positive and there
is an as yet not adequately tested longer run cyclical trend line that runs out to 2500 at y/e 2017.


Most fundamentals - based forecasters seem to expect SPX net per share to reach a range of $125 -
$130 next year but there is some considerable disagreement over what p/e ratio is appropriate
to select based on differing views of how much inflation the US will get and in turn, how
aggressive the Fed will be in boosting rates. But, very few forecasters see a p/e ratio below 18x.
I think this stems from the idea that 2018 will see another year of strong earnings.


My Thoughts
The consensus view is too elegantly crafted in my view. Total business sales have improved, but
are still very modest. And, if orders do continue to pick up and inventory excesses are further
trimmed, eventual pipeline filling will put surprisingly strong upward pressure on prices, thus
forcing the Fed's hand. Plus, we are talking Trump in 2017. Maybe he will succeed in putting
more money in peoples' pockets, but he is easily 30 years behind the times and the macho
buffoonery elements to his 'America First' view cry out for geopolitical challenges. He is set
to make the US and rest of the world more volatile. I see egomania and a penchant for
insistently fanciful thinking. The US is sharply divided and his antics could create additional
social pressures.


Technical
The SPX chart shows an intermediate term overbought condition is developing.  SPX Daily

USD -- Significant Overbought Developing

From mid - 2009 through 2014, US monthly export sales increased from $120 Bn. to $200 Bn.
Now, global economic growth has slowed since the initial phase of economic recovery, but a
much stronger USD since late 2014, when the Fed first tightened monetary policy, has no
doubt contributed in a major way to export sales weakness since then. Since the economic
recovery began in 2009, I have been bullish on the USD because longer term economic
fundamentals have gradually turned positive relative to the rest of the world. I have been
projecting a gradual climb in the value of the dollar from the low 70's to 100 by 2020. I am
not a fan of a very strong dollar because it encourages nasty mercantilist policies from Asia
and Germany. So, I am happy to see a USD overbought. $USD -- Weekly

The chart shows a developing, significant overbought condition for the dollar based on inter-
mediate readings of RSI, MACD, and the Keltner bands. USD price action is less sensitive to the
indicator readings in the shorter run, so one cannot say for sure that a downward hit on the
currency is imminent.

The bottom panel of the chart shows the gold price. It has been hammered recently by the sharp
increases in both the USD and the stock market. A retreat in the value of the dollar, even a
temporary pullback of 3-4%, could give the gold price a tradeworthy lift.

Liquidity Cycle & Monetary Policy

Good to Its word, the Fed zeroed out the growth of Fed bank credit and the monetary base about
two years ago. Since then and as is typical, the economy lost most of its growth momentum and
the stock market has been anemically positive. The end of all quantitative easing resulted in a
substantial but not fatal tightening of monetary policy. The lackluster US economy has been
funded by the private financial sector. Not only did the private finance not fold its tents, it
provided sufficient credit to fund a slow, deflation prone economy with excess liquidity to
support both rising bond and stock prices. However, as the economy slowed down, the growth
of private sector liquidity did as well, and now with signs that the economy and the inflation rate
have accelerated, the growth of excess liquidity has shrunk, and it has become far more diffcult
to fund the capital markets. The big casualties have been the bond and gold markets.

With a stronger economy and more inflation, the private financial sector will respond by providing
faster funding growth through the loan windows. For this to happen, the Fed will have to move
to tighten policy further gradually so as not to create a liquidity squeeze via taking action that
flattens out the yield curve. If there are larger fiscal stimulus plans that come on the board over
2017 - 2018, The Fed will have to accommodate them up to a point so as not to choke off the
economy and provided the inflation rate does not accelerate too rapidly. US policy will have to
watch carefully the developing supply / demand situation in the oil markets as well because
if oil supply becomes meaningfully restricted, a rising oil price will push up the inflation
rate and lead to a significant wealth transfer from net oil consumers to net producers.

But, perhaps it is wise not to get too far ahead of ourselves. For a more nearly normal liquidity
cycle to play out, the US has to show first that it can sustain a faster rate of economic progress
and that It is finally overcoming the squeeze on primary system liquidity that comes directly
from the Fed. Recent economic data finally reflects a positive beginning to the process.

SPX Weekly -- Up and Up There!

The continuing rally has shown enough conviction and momentum to count as a breakout and
not a mere blip over a two year long trading range.  SPX Weekly

It is significantly overbought in the very short term, but has yet to reach levels on the intermediate
term weekly chart that would warn that a substantial retracement is in order. The market is now
moderately overvalued and strategists are busy playing with the SP 500 net per share to bring
the p/e multiple down to levels where buyers can feel more comfortable joining the chase. Using
GAAP accounting, and recognizing economic performance and oil company profitability are
moving forward, it is not a stretch to come up with an estimate for SP 500 operating net of
$120. per share for 2017. Yet, with  Trumponomics entering the equation, estimates for 2017
are now being ratcheted up to $140. This compares to 2016 net of about $108 per share. This
particular game is about 60 years old give or take.

The SPX is now about 13% above the upper band of its Post WW 2 trading range. In terms of
recent history, the market is behaving like it did in 1996 and 2004 when it ran above the top
of the historic range for several years until it collapsed upon encountering rising recession
prospects. You can maker good money during these periods of unbridled longer term effer-
vescence and lose your shirt when folks get wind that a economic downturn could be at hand.

At my leisure, I have been doing some thinking about the longer run prospects for The Donald's
presidency. In a nutshell, he is 30 years too late. Most all of the horses he rails about are long
gone from the barn and the views of his cabinet picks are as well. The world continues to
grow rapidly around the USA and The Donald's views are especially, painfully reactionary.
My grandson of 18 years is a techno - wizard with pals of many ethnic stripes and e- buddies
around the world. Perhaps talking with him as I do will keep me better informed than Wall
Street.

Gold Price

The gold price is volatile as we all know. But it has been hard to handle this year even so. There
was a good long side counter trend rally early in 2016.The oil price was turning around and the
inflation rate was in bottoming mode. The positive price action in gold got out of hand as the year
wore on and on Jul. 10, I cautioned both gold and silver were overbought on record speculative
interest. Gold hung around briefly but has since tanked 15%. This is not your father's gold market.
Since the 2002 -03 period, long side speculative interest has increased by six fold and the
curmudgeonly old bugs who used to haunt the market have been swamped by large pools of fast
money, especially hedge funds. With the US dollar picking up again in Oct., and the stock market
in rally mode since Nov. gold has been shunned and now sits $200 oz. below the highs of this
summer.

Gold has experienced a bearish 50 day m/a  /  200 day m/a cross and although it is still above the
lows for the year, is now sharply oversold with speculative interest waning quickly. The dollar is
easing off, but the stock market, although overbought, remains strong short term. My economic
and inflation directional indicators remain positive, which would normally help gold's case, but
the market may await short term damage in stocks before gold can stabilize. Moreover, there
are gold players who trade off the oil trend and black gold has recently leveled off.

Such are the headaches of playing counter trend rallies.  Gold - Daily Price

Oil Market / Price

The view here has been that even though there is a good chance that global oil demand / supply
will come into reasonable balance by the end of 2017, producers pressured themselves to reach
an output cutting agreement this autumn rather than face another early winter sharp seasonal
drop in the oil price. And, presto!, the boys have an agreement with Saudis and OPEC taking the
lead. Everyone knows there is going to be cheating, but the hope among producers is that the
price will hold over the next couple of months, some cheating notwithstanding. By Feb., the
process for gearing up output to ready for the peak drive period will be underway and the
industry can start looking to seasonally higher prices. A consensus is emerging among industry
observers that crude should trade between $40 - 60 bl. in the months ahead.  WTIC Weekly

The oil price began to turn positive early in '16, but currently remains tentative until crude
begins to clear $50 on the upside. Good to remember that with weak demand, no one would
be shocked if the price tested the $40 area again before moving higher again in late winter.

Consensus is that the entire oil output industry becomes profitable again around $55 bl. As
shown on the chart, the current 52 wk. m/a is about $42.50., so the boys are still running well
in the red on an annual basis. The bottom panel of the chart shows the 52 wk. ROC% for
oil. It is now strongly positive, so producers are going to show less awful results and SP500
net per share will receive a nice shot in the arm going forward. With oil price momentum
improving you can also expect higher inflation readings around the world.

Producers plan to re-visit the production curtailment around the end of May. If there is not
widespread cheating, the emphasis will be on whether there has been any progress in paring
the outsized inventories of crude and byproducts. I doubt now that there is much of any
consensus on where the oil price may be later in 2017.

SPX-- Monthly

Back on 10/2, the monthly MACD indicator for the SPX had just experienced a positive cross
and because I trust the indicator, I suggested the market could be poised to rise in the months
ahead. I suggested in the title that we could be entering a 'brave new world' because of how
expensive the market is and how hyper extended it is on the very long term, post WW 2 SPX
chart. The implication then was that a fresh uptrend could be starting for the current cyclical
bull market. Well, the market has gone on to new highs in the interim, but, of all things, the
positive cross for the MACD indicator is in virtual stall mode as price momentum has not been
strong enough to push it strongly higher.  SPX Monthly

So, we can give the indicator credit for the recent rally, but I think it is fair to say the jury is
out on sustainable positive price action going forward. You can if you want claim that the
market is on the overbought side currently and when it settles back, more positive action will
ensue and vindicate the monthly MACD. Could be, but I am in no hurry.

SPX Daily -- Overbought Short Term

The cyclical bull market continues despite the recent but doggy two years. The market has
rallied recently to a possible major breakout point, but in doing so has moved up to a short
term overbought position of consequence.  SPX Daily

As with the other rallies we have seen this year, the early phase has taken the SPX up to an
extended position relative to a newly drawn trend line and thus leaves the market with
plenty of room to consolidate or correct in the near term without a clear violation of trend.
Naturally, the chart hardly precludes the market from going higher in the near term, but it
does suggest the train may not entirely clear the station without leaving another entry point
that may be more pleasing to those inclined to add more to long positions.

Holding the Trump bandwagon aside, fundamental cyclical directionals support more gradual
progress, and monthly economic data appear to have firmed although on-the-ground
performance still lags the directional indicators. Investors and traders are also keenly aware
that history favors the Nov. - May period as seasonally positive. As well, the doggy action
in the market since the highs of 2014 is likely whetting some appetites for a strong, positive
breakout.

The Trump buffs are excited about his proposals to cut taxes sharply, establish sizable
upgrades to infrastructure, and allow companies to repatriate foreign held liquid assets.
They have rejected the idea that the negative Trump ideas of new demands on trading
partners, disruptive pursuit of illegal immigrants and a rebuff on climate change will even
see the light of day. These rather selective menu picks may be just right, but other critical
issues are still being ignored such as an economy already near full employment, and budget
deficits that may prove only slightly stimulative if they drain private and public savings as
they are financed.

The next three months will also bring an eye opening experience of the periodic three alarm
dumpster fires that Trump creates as he goes along. We New Yorkers have known him for
nearly 40 years and we can only guess at the chaos he can promote on a world stage.

Stock Market Profile -- Weekly

Fundamentals
Cyclical directional indicators are tracking positive. Excess financial system liquidity is positive
but shrinking owing to faster economic growth and inflation. With the Fed having frozen Its part
of liquidity since late 2014, I favor trading the market and only going long on deep oversolds.
Business profits are beginning to recover but remain under peak 2014 levels.

Technical
The market rose to a new high this week. It is modestly overbought. Watch to see if the MACD
can stage a positive reversal. Note that uptrends now in place have not been tested by any pullback.
The market is a tad over 5% above the highs of 2014. The advance to new highs in 2016 counts
as a flimsy bull episode in my view and awaits more robust positive confirmation.
SPX Weekly

Valuation
The market is clearly overvalued on the various measures I use. Fair value presently lies in a range of
SPX 1990 - 2050.  Currently, the SPX is trading about 9% over the mid-point of the fair value range.
The premium primarily reflects the fact that market players have yet to trim the p/e ratio as they
should when the inflation % accelerates. Folks are now smitten with the presumed economic benefits
of a Trump presidency and the evidence at hand that balanced fund managers and hedgies are
reducing bond exposure in favor of equities.

Sentiment
Bullish sentiment is elevated among advisory services, but is fairly neutral among players who
are actually trading the market via options.

Long Treasury -- At Deep Oversold

In a Jun. 20 post, it was argued that the long Treasury price was "steaming toward an overbought."
And it got there, registering a major intermediate term overbought. Now, there is a flip side, with
the TLT long Treasury ETF having just sold down to a deep intermediate term oversold.
TLT Weekly

Bond price directional fundamentals began turning negative in early 2016. The deterioration has
been mild but persistent. Absent has been the strong production growth and heavier resource
utilization that puts hefty upward pressure on inflation and galvanizes the Fed into tougher
restrictive action. With only nominal cyclical pressure, bond players ignored the warning signs
and bid Treasuries sharply higher into early Jul., ending  the run with what appears as a blow-off.
The market has trended down since, and has recently tumbled as bond traders have come to
believe that Trump's election will involve heavy fiscal stimulus that will accelerate real economic
growth as well as inflation, and will also result in a large increase in deficit federal financing,
with the Fed to follow by pushing short rates higher.

These new concerns could all turn out to be true, but if so, their realization will take considerable
time and may not be strongly evident until 2018 at the earliest. In the interim, questions are bound
to arise about whether the Trumpistas can pull their fiscal program off and whether other initiatives
from The Donald on trade and immigration may work as growth deterrents. This leaves the question
open whether the current stampede out of bonds will overdo it by enough of a margin to produce
an eventual counter-trend rally in a heavily oversold market.

Near term, TLT is moving toward a respectable support level down around 115.

Whatever, bond players might do well to begin to try and factor a volatility premium into
their pricing models to account for an apparent reduction in primary dealer market making
capability as a result of post 2008 financial system regulation.

SPX -- Weekly

Fundamentals
The stock market has tracked my forward looking weekly cyclical fundamental indicator very well
this year. This index has flattened out since Sep. and is in line with the recent toppy action in the
market. Interestingly the economy and corporate profits have seriously under performed the
indicator so that the market has been running well ahead of on-the-ground fundamentals. The latest
rally primarily reflects players buying well on the come in expectation of a Trump / GOP Congress
fiscal stimulus plan presumably to be unveiled early in 2017.

The Fed continues to hint that short rates will be raised soon. A classical cyclical case for a rate
increase is not yet in place, and the Fed has also taken to hinting that rates may be raised to keep
markets from getting too effervescent. With inflation already accelerating and a Trump fiscal
goose to the economy now widely anticipated, the bond market is folding its tents and has shifted
some funds into equities from fixed incomes. With bond yields trending sharply higher near term,
it will be interesting to see if the Fed feels compelled to raise the Fed Funds rate in Dec.

So far, stock players have yet pause to see if there are further assurances from the Trump camp
on stimulus and, if the Congress is willing to go along with the large deficit financing that will
be entailed. GOP conservatives like the tax cut proposals but are indifferent to the infrastructure
plans while the Dems are thumbs down on tax cuts for the wealthy, but like the spending plans.

Equities players will have to watch all this carefully because the industrial side of the economy,
where most of the earnings leverage is, continues to perform poorly. Not only that, but wage
pressure is starting to run well ahead of pricing power, which crimps profit margins. As well,
what if stimulus programs are dinky?

Pauses and / or corrective action in the Trump rally should come as no surprise until matters
are further ironed out.

Technical
For the current uptrend in the SPX to be of substance, the market needs to take out the previous
highs of the past summer in a convincing fashion or else the SPX will face a possibly troublesome
'secondary top.'  SPX Weekly

It is not easy from a technical perspective to have high hopes for the current rally as it comes off
a rather shallow oversold.

Gold Price

The argument here early in the year was that there was a mild cyclical case in support of gold. The
rally that ensued became outrageous and took gold up to a huge overbought and record setting
long side speculative interest by the summer. The metal was fueled by a fast rising oil price, Brexit
and uncertainty concerning the US election. The oil price has weakened since, Brexit has quieted
down as an issue and players have voted for equities over gold since the US election. Looking out
into next year and with the reasonable assumption the US will see fiscally stimulative fiscal policies,
there is still a mildly cyclical positive case for the gold price to rise. Short term, gold may remain
hostage to a seasonally weak oil price and possible US dollar volatility (See third panel of chart up
next)  Gold Price -- Daily

Gold has swung from a big time overbought to a moderate oversold and sits atop a $1200 - 1225
support zone. Since the knife is still falling, and given gold's natural volatility, only heroes will be
stepping up now. More settled players may wait to see if the oil exporters can reach a production
curtailment agreement that is not set ridiculously high before year's end when another painful
seasonal down leg in the oil price is in store. As well, hedge funds like gold as a haven to park
money when the stock market takes a hit. Since there could be slips between cup and lip for
the current equities story, do not turn your back on gold.

The Stock Market As Best As I Can Figure

Back on 10/27, I opined that since the classical conditions for a bear market had not been met, it
was likely premature to write the obituary for the current cyclical bull. The uptrend that was in
place since Feb. of this year was clearly broken by the recent Aug. / Oct. corrective action. and
one could argue that this last leg up through Aug. was the third and final one. But I thought it fair
to wait on that call because it was not underwritten by a clear negative fundamental picture.

The market is now in a seasonally strong period that could last through early spring 2017. Profits
appear to be turning up, and both candidates for the presidency did have fiscal stimulative
measures on their agendas for 2017. Trump's was far larger in scope and with the GOP set to
take the White House plus both sides of the Congress, market players have become re - energized
and have rallied the market strongly from a moderately oversold condition. The SPX bounced up
from its 200 day m/a and awaits further confirmation from a positive reversal of the 25 day m/a.
SPX Daily

We do not know the fate of Trump's stimulus proposals but investors seem willing to bet that
sizable pieces of his tax cut and spending programs will pass, thus buttressing the economy and
profits through next year and into 2018. Sharp upturns in longer dated Treasuries also suggest
fixed income traders agree as they are beginning to factor in higher inflation from faster growth
and increased utilization of capital resources. The roughed out projections for next year also
signal that the Fed is likely to raise short rates to keep inflation in trim. With a larger Treasury
calendar in prospect along with stronger business pricing power, there may also be some rotation
underway from bonds into stocks.

The chart linked to above shows that rapid rises in RSI are often followed by market pullbacks,
and the combination of Trump stimulative measures, should they eventuate, along with probable
Fed tightening may well be a recipe for increased market volatility in the months ahead.

As well, there  could be a substantial timing issue involved regarding Trump stimulus programs.
If he is interested in re - election, fast enactment of tax relief and higher spending issues could
produce an overheating economy before 2020, and leave Trump in a tougher political situation
at that time.

Finally, the US is experiencing social tensions that are running just below the boiling point.
These acute social misgivings should eventually recede, but political miscues in the early
going of the Trump presidency could create further fracturing of of the public's mood that
might affect business and investor confidence.

The Trump We Know....

It's a little disconcerting to realize that The Donald won the Presidency, but was booed when he
showed up in NYC at PS 59 to vote and that he was creamed by NY voters. We are sending him
off to Wash. DC to be enjoyed by all, having failed to keep him to ourselves. So what can you all
expect? Well, right now he is fashioning himself for the office, trying on different guises to see
which one best suits the seemingly limitless ego. Should he play the hard nosed 'America First'
right wing populist, or now that he has captured the office, perhaps he will pose as the firm but
beneficent uniter, pulling those from left and right of center in grand schemes to regain our lost
glory? Or, perhaps he will be a bored protaginist who lets VP Pence and others do all the heavy
lifting.

Figure that whatever, he does not live in your world. You live in his. And figure that the world
is about to become an admittedly very large subsidiary of Trump Inc. A subsidiary who he hopes
he can nurture into a cash cow that can sustain his company and "brand" for posterity. Through it
all, he will do some good and neat things and he will do some very wacky and irresponsible things.
And, remember that even if you live in Podunkistan he will touch your life.

It falls primarily to the US to try and contain and control this guy and it may be necessary for
you, if you are a foreigner, to help out on occasion. Keep in mind also that if you are part of
the shifting and jostling herd that challenges him, hits him as they say, he will hit back hard.

In my years on this earth, I have been genuinely intrigued by few leaders because of their
compelling humanity. They would be Jack and Bobby Kennedy, Dr. King and Barack Obama.
The Donald is more of a case study in egomania and not an engaging person and leader.
I plan to be a mere pale shadow in Trumpworld, and to keep my head down and my
distance.

Wish you all the best.....

SPX -- Daily

The FBI took Hillary off the hook yesterday, and market players showed they were worried about
The Donald via today's rally which suggested Hillary could gain enough momentum to win
Tuesday. Zippy stuff. Now the stock market did correct over the Aug. - Oct. seasonal 'jitters'
period and traders know we are moving into a seasonally strong interval which can last into the
early spring of the succeeding year. So, not only did players affirm hope for a Hillary victory,
they may be using the market's oversold position to get a jump on positive seasonals.

The bounce in the SPX came off the 200 day m/a and was strong enough to wipe out the Trump
dump that had gathered. Well, this all could work out just dandy, but Hillary needs to pocket the
win, and then The Donald and the Trumpkins have to behave and accept the verdict if it supports
that 'awful woman'. The bitterness and rancor of this campaign probably even exceeds the ugliness
some of us old timers saw during the twilight of the Truman presidency, 1950 - 52. Most folks here
think the very hard feelings will continue for some time and  require now vanished statesmanship
to reappear to get a  government in failure mode back on the rails again.

Prudence is a vice in a bull market but a week's worth of intense vigilance may not be fatal.

SPX Daily

SPX -- Daily

Finally, a frisson of fear that The Donald could actually win this thing, or at least create chaotic
post election uncertainty. And, of course, it's Fed policy decision week. So, there was strain in
the market today, and short term 'double bottom" support at 2125 was violated, leaving the market
in corrective mode.  SPX Daily

The chart indicators show a down trending market and an approaching oversold. However,
on a price momentum basis, the SPX is at a very shallow oversold and could fall another 5%
in the very short run before it gets hefty.

The economy has gradually firmed in recent months, thus giving the Fed a little more cover  if
it would like to raise the FFR% another notch. Current indicator benchmark standards are not
up to post WW 2 standards, but are headed, albeit slowly, in that direction.

Trump? The guy is an egomaniac and a demagogue and scares many bright, worldly people.
If he is starting to surge in the closing days of this abysmal election, there could well be
preemptive defensive action that I would not care to guess beyond saying that gold could
have a bounce.

Long Treasury Yield %

The long Treasury yield made an all time historic low in early July, 2016. As discussed since then,
this probably will rank in the very low end of Treasury yields going forward. Yields are being
pushed up by a mild acceleration of inflation which appears headed up to 2.0% yr/yr as well as
by speculation that the world's central banks are tiring of providing super accommodative
monetary policy. More specifically, Fedspeak has been threatening to raise the Fed Funds rate
in the near future.  $TYX

Despite the recent corrective uptrend in yield, the Long Guy has just reached the downtrend line
in place since late 2013 and has only recently crossed its 40 wk. m/a. So, a critical test lies ahead.
Note too, that crosses in yield above or below the 40 wk. m/a tend to be consequential.

The bond price tends to get oversold  for the intermediate term when the 52 wk. rate of change
in yield gets up +20%. I would also note that tougher dealer capital requirements and more
trader interest in this market have made it more volatile, and the rate of change in yield can now
go to plus or minus 40% on a 52 wk. basis. This means yield trend can be very much stronger
than in years gone by.

As a final point, a horizontal line has been set at 3.40% to signify where the long Treasury yield
would have to travel up to to signal that the decades' long bull market in the Long Guy might
be coming to an end. To get there, faster inflation would be in order as would more tightening
by the Fed. 

The Typical Stocks Bear Market

In recent times, the stock market has tended to carve out and extended top before the cyclical
bear arrives. The current cyclical bull has basically gone nowhere for two years. So, it gets
tempting ask whether the market is experiencing one of those periodic, lengthy topping periods
now.  SPX Weekly

It could be so, but the current period does not fit the the typical lead - in. What is missing of
course is the steady rise in short rates along with progressive flattening of the yield curve that
heralds the onset of a pre - recessionary liquidity squeeze / credit crunch. Some elements of a
problem are there. The Fed zeroed out the growth of its balance sheet and the monetary base
quite some time back and even raised the Fed Funds rate a notch last Dec. Moreover, Fedspeak
is leaning in the direction of another increase before long. But the supply of loanable funds now
provided by the private sector has been steadily growing faster than the demands of the real
economy because of low output growth and nominal inflation. Confident investors have drawn
on the excess liquidity to invest in and trade the capital markets. In addition, history shows that
even when the economy perks up, liquidity and the supply of credit can expand along with it
at least up to a point.

So, it would appear premature to write the market's obituary based on the fundamentals since
the traditional cyclical deterioration of the financial system and rate structure is not in evidence.
However, it remains troubling to me that the stock market and the economy have struggled so
obviously since the end of QE 3 as 2014 closed out, and that the economic system has been
saddled with excess business inventory for such a lengthy period.

For now, bond and stock prices are in softening trends as both markets come off the hefty
overbought conditions of the summer. Market players are seeking to find appropriate price
levels to accommodate another short rate increase. There may also be nervousness as the
election fight comes through the home stretch as well as some trepidation about how Trump
will behave in either victory or defeat.

Stock Market -- Fundamentals

The Fed ended its QE programs in late 2014. From a liquidity perspective, the US has experienced
stern tight money since then. I along with a few others warned that both the economy and the stock
market could be damaged following a large, cumulative QE program as occurred in the few other  instances when major QE was halted. From the latter part of 2014, US business sales fell  from
a 7% yr/yr rate of growth down into negative territory by the end of last year and nearly went
into recession before stabilizing. Business sales and profits were also damaged by the oil price bust
which took place over the same period. Since new business orders spiked high in late 2014 / early
2015 just as sales momentum turned down, the economy has carried excess inventories ever since.
Super low shorter term interest rates make it easier to carry inventories, so the holding of large
stocks has continued to suppress economic demand. Over this period, SPX net per share has fallen
from about $115 to $98 in 2016. Overall, the economy did not fare that badly, as the Fed wisely
kept interest rates at historic lows.

The stock market did better than profits since late 2014. The SPX is currently about 2.4% higher now
thanks to a premium dividend yield compared to short rates and Treasuries and exceptional investor
and trader confidence.

Looking out a year, most players are mildly bullish, expecting the SPX to grind modestly higher on
a positive bounce in earnings sufficient to overcome worries about upticks to inflation and short
rates.

This is a risky environment. There is no liquidity tailwind from the Fed. To avoid a sharp economic
contraction and deeper weakness in profits, excess inventories will need to be worked off slowly.
Such measured inventory policies rarely happen. Inflation will need to be modest enough not to
pressure household incomes too much. Finally, the post - election period will have to yield promise
of either fresh fiscal stimulus or the introduction of a new avenue of monetary easing to assure a
degree of economic rebound. 

It is not easy to thread a needle.

SPX Weekly

SPX, Long Treasury, Oil Price -- All Quickies

SPX
The fairly strong overbought of Jul. - Aug. has been wiped as the market continues to exhibit mild
corrective action. The uptrend line in force since Feb. of this year has been broken and this remains
a source of concern as is the negative controlling force of the 25 day m/a. The SPX has however
notched a double bottom this week and it remains to be seen whether it can rally more forcefully
off that 2125 level or whether further ground may be lost. Quick little swings in sentiment concerning
monetary policy for the remainder of 2016 appear to dominate the action.  SPX Daily

My proxy for US business sales through Sep. rose a paltry 0.5% though pressure on earnings may be
subsiding as weakness in oil / gas comparisons should continue to grow more shallow. Output from
the mining / extraction / minerals sector was down a sizable 9.4% yr/yr despite modest improvement
in recent months, but pricing in this sector is less awful.

Capacity utilization in the US. is only 75.4%, unheard of in the modern era for an economy that has
been expanding for seven years and the data has to be unnerving to the Fed.

Long Treasury Yield ($TYX)
The long T-bond yield has swung up since early July probably mainly on talk of eventual Fed
tightening. Note as well that the yr/yr % change in CPI inflation has continued to inch ahead with
Sep. standing at 1.5%. Under the most charitable conditions, the long term yield premium spread
of the Treas. vs the CPI would dictate a 3.5% T-bond yield presently. Continued very low real
growth of the economy and large capacity slack has been keeping the yield near historically
low levels.  $TYX Weekly

The long Treasury was very overbought in early July and this position has eased very substantially
in recent months. Thus despite the talk of further monetary tightening and the slow push on
inflation, some traders may play on the long side and it will be informative to see if they push the
bond down enough to reverse its uptrend.

The bottom panel of chart shows the relative strength of the stock market vs the long Treasury.
Note that since QE 3 ended as 2104 ran out, The bond has done about as well as the stock market
on a price basis as bond players correctly gauged that elimination of QE programs would suppress
economic growth and that the blowout in the oil price would contain inflation.

Oil Price
With peak seasonal driving for the year having past, oil has entered a period when the price can
be seasonally very weak right into early Feb. of the succeeding year. Net oil producers could
well hit another period when oil revenue inflows tumble unless they can convince the market
that a strong agreement to limit future oil output can be hammered out. Failing that, WTIC
crude could zip down from around the $50 bl. level right along to $35 - 40 by early this coming
Feb.  $WTIC Crude 

Note that oil has held its uptrend since Feb. of this year. So the test of producer credibility lies
dead ahead. A tumble in the price would further devastate the finances of net producers, probably
bother the SPX and could give the market for top quality bonds another reprieve.

SPX -- Daily

The stock market ended the latest upward thrust in Aug., when it became overbought on both short
and intermediate term bases. Weakness since the outset of Sep. could be attributable to a work off
of the overbought condition, but extension of a dip here in Oct. sees the market entering more
perilous territory. The indicators have weakened; the SPX has had trouble breaking through a
falling 25 day m/a; the uptrend line in place since Feb. has been violated. Thus, we have red flags.
SPX Daily

Bad enough the Fed has been keeping up the hawkish patter on the outlook for short rates. Now
a broad range of fundamental issues have increased player anxieties including the Deutshebank
meltdown, new worries about how troublesome Brexit may become, concerns over earnings, and
the sudden fractures within the GOP just a few weeks ahead of the elections. The latter represents
a rare disruption for the idea of a stable two party system, and with The Donald talking nasty
in the wake of his recent "grab them by the pussy" video, freakish debate performance, and GOP
desertions, the party, long a bulwark of US political life, appears in crisis. A novel uncertainty has
presented itself. All of this has come to pass during the latter stage of a jittery seasonal period.

The market is slightly oversold. For the SPX, there is important short term support at 2125. Breaks
of trend are not to taken lightly. Consider also the NYSE a/d line which shows vulnerability as well.
NYAD Daily

Gold Price

Back on Jul. 10, the argument here was that the price of gold had hit an intermediate term overbought
on record speculative interest in the futures market. Despite the glaring technicals, the price held up
reasonably well until the last several weeks when market sentiment, observing a firming of the USD,
began to deteriorate as players encountered a fresh round of Fedspeak concerning the readiness of
the FOMC to raise short term rates before long (Dec. probably). The fundamentals remain ever so
mildly positive, but the gold price had so wildly over discounted them that a fast negative reversal
in gold's fortunes has rapidly ensued. Gold Price -- Weekly.

The sharp sell down in gold has eliminated the overbought position and the heavy premium to its 40
wk. m/a. Speculative long positions in the futures market are rapidly evaporating but still remain
elevated. The fundamentals ex. the USD have firmed up a bit more with a recovering oil price
leading the way. The dollar still has some short term upside before it hits an intermediate term resistance level. With plenty of chatter out there about the world's major central banks experiencing easing fatigue and a very unsettled UK pound market, it may be necessary to give the gold price a degree of downside leeway to important support at $1200 oz. In addition, since the recent price weakness in gold broke a nice uptrend line running back to late last year, there may be further, belated downside action in gold.

Going forward, it still pays to watch the US economy and whether further expansion is strong
enough to support a mild acceleration of inflation. True, short rates may rise gently further in
such a situation, but there is no guarantee whatsoever that the USD will follow rates higher.
If so, that may give gold another shot at redemption. And, who knows, if Der Trumpy wins
the election the gold guys might like that.

SPX Monthly -- Brave New World

I have long had substantial respect for the monthly SPX chart, especially the MACD indicator.
Crosses in this measure have proven to be useful guides to future results for the market because
whipsaws have been few and far between. Monthly MACD is in the second panel of the chart:
SPX Monthly

The negative cross in early 2015 tipped off well the 15%+ decline that followed late last year and
carried into early 2016. Now there is a positive cross which confirmed the rally to new highs just
a short while back. The SPX reached an intermediate term overbought this summer, but if the
monthly MACD is taken at face value given its history, the market should trend higher for a period
of months going forward.

Looking from a reasonable perspective, how could this happen? Well, there could be a trend
extension continuation pattern based on the assumption the economy evades recession but does
not grow rapidly enough to foster a significant rise of inflation and a sustainable upturn in short
rates. Or it could be the result of a stronger economy and rebounding profits sufficient enough to
offset the hit to the p/e ratio from a program of gradually rising short rates and somewhat higher
inflation coupled with a degree of rotation out of bonds into stocks. The latter case would signal
the economic expansion was moving into a more mature phase when stocks can certainly rise.

The secondary fundamental indicators I use for the market have cleanly supported the rise of
the SPX since early this year, but implicit economic performance has fallen enough below par to
warrant caution in making either market or economic predictions for the year ahead.

There is growing chatter in the financial press that a Trump election victory could lead to a price
correction in stocks of 10% because it would represent, speaking euphemistically, a wild card.
But if the consensus of market players continues to support a Clinton victory, we could almost
as easily see a pull back on the premise of 'buy the rumor, sell the fact' as players focus in more
carefully on what a Clinton victory might really mean for the economy.

There is an old New Yorker admonition for times like these: Don't be no hero.

Stock Market

Fundamentals
The cyclical bull market that started in early 2009 remains in place. But, it is an uncomfortable time.
My forward looking weekly cyclical indicator has been nicely on the rise since Feb. '16, in line with
the current up leg of the market, but the customary positive follow through for the economy and
for profits suggested by the indicator has fallen far short, leaving the market to advance primarily
on a nominally rising dividend, yield premium to cash equivalent and Treasuries, and a very low
inflation rate. Players call this "TINA", short for "there is no alternative". The idea is that with the
Fed holding interest rates so low, there is not enough competition for stocks. So far since the
latest leg up started in Feb., the premium p/e ratio, hyper extended position of the current price
level, and stagnant earnings have increased anxiety but have not knocked the SPX off of its uptrend.

With Fed members talking about raising short rates before long, the rally has lost positive
momentum and players are also wondering about the outcome of the upcoming election as well.
Since my forward looking economic indicators are not working very well at this point, I am not
about to step out of character and start making market predictions. When some useful clues come
around, I'll reassess. The stock market does not owe us a thing at this point, but I hope the economy
owes us some stronger performance.

Technical
The SPX continues to work off the overbought levels hit this summer and the indicators show mild
deterioration.  SPX Weekly

Oil Market / Price

Sep. is one of the strongest months for the oil price on a seasonal basis. The rally fizzled again this
this year, with large speculators exiting trades. The scenario I have followed called for oil demand
and supply to come into balance by the end of 2017, despite likely outsized inventories. With a
slower pace of global economic growth so far in 2016, oil demand is running below initial
expectations, and with supply still growing at a high rate, the inventory pipeline is susceptible
to filling further. With a nod from the Saudis, talk is now swirling around the idea of some kind
of global production ceiling if not a cut. It could happen, but 50 years of history teaches to be
careful of this kind of talk in the wake of major price busts.

I played the long side of oil over the winter / spring of this year but have been suspicious since
mainly because of the near historic long side speculative interest in the crude future. Heavy long
side interest is subsiding quickly now, but it is back to the drawing board for me as there are
question marks concerning both global supply and demand looking out 12 months. Since the big
traders and hedgers in the market get more intelligence faster than the rest of us, one rule of
successful trading in oil comes to the fore: Oil is volatile, so do not bother trying to catch tops
or bottoms, but concentrate your research when trend develops instead. Whipsaws happen, but
since oil tends to trend, spotting change can be profitable even after its price direction has
begun to establish itself.

With the peak driving season in the northern hemisphere now wrapped up, oil is set to enter a
strong price downtrend on a seasonal basis.Thus, the large swirl of talk about limiting output as
another sharp downturn in price would add to the severe economic damage net oil producers
have already sustained. Stay focused on the news.

WTIC Weekly

SPX -- Daily

With a sharp, short time duration sell off early in the month followed by a fast double bottom
just above the SPX 2125 level, the market is attempting to rally off a moderate price momentum
oversold condition. A rise in short rates has been pushed further out in time, so stocks and bonds
have some breathing room to the upside. If you are long the stock market, next you will want to
see if any further progress is sufficient to reverse the downtrends in SPX RSI and MACD.
SPX Daily

Monetary Policy

Despite intimations from Fedspeak that an increase in short term interest rates is in the pipeline,
recent economic data through mid - Sep. turned weak and left the Fed having to again postpone
further tightening of policy. This being a national election year, the incumbent party wants to
show economic data at its best right before the vote, so a snap back in Sep. data to be released
next month cannot be ruled out. If that is not feasible and weakness continues through the
month, the GOP could win the presidency and trigger off a wide range of interesting discussions
about the economy after election day.

Be that as it may, the classic case for tightening monetary policy further is not in place, and we
have to wait and see whether incoming economic data released next month improves. If such is   
the case, then after election day the Fed will have a freer hand with policy.

Long Treasury Price (TLT)

Back on Jun. 20, I argued that the long Treasury price was steaming along up to a major overbought.
With long Treas. yields still near all-time lows, prices are still near highs. Years out and looking back,
these price levels will very well likely be in the top tier of the long term range. Positive sentiment is
still fairly strong, so it could be a stretch to say that the latest run up in TLT from the spring until
recently was a blow off top.  TLT

The recent volatility in the bond market appears to be fueled more by expectation than short term
on-the-ground fundamentals. Whatever the Fed does this week with short rates, Fedspeak wants
to keep the issue of eventually raising short rates in the headlines. Players may also be looking
toward 2017 when a slow economy may lead a new president to push for significant fiscal stimulus.
This election year has introduced the political elites to the fact that the silent, primarily white,
majority is angry, vocal and demanding. These folks are leaning in hard on people and programs
which might make their economic lot better and more secure. This all could translate into
incremental deficit financing at the federal level starting next year. Infrastructure repair and
development programs coupled with tax relief and other stimulative measures, if large enough in
scope, could foster somewhat faster real growth, stronger inflation and a larger Treasury bond
calendar. In such an environment, the Fed would support higher higher rates and further upward
pressure on bond yields would ensue.

Now, the hard truth is that the bond market is not comfortable looking out even this far, but with
nearly everyone suspecting that yields are at or near all-time lows, and armed with the additional
knowledge that so many folks are pressing for better and more financially secure times, it is not
unrealistic to think that bond players are looking out past the ends of their noses.

If so, the bond market could be tougher to 'read' than usual in the short run and there could also
be more volatility as a result.

SPX -- Weekly

Technical
The SPX has weakened recently, but is still holding an uptrend from this Feb. based on weekly and
daily closing prices. An intermediate term overbought condition is being relieved and the break in
the MACD pattern should be source of concern, although whipsaws do happen. The market is
still supported by a rising 40 wk. m/a, but note the loss of positive momentum. The volatility index
(VIX, bottom panel) is trending up but is not at a threatening level by long term standards.
SPX Weekly

Fundamentals
Conflicting Fedspeak has whipped the market around. The FOMC meets shortly and Their trial
balloons suggest the market would not take kindly to a rate hike, especially with weakness in
recent key economic data such as the readings for the PMI's and retails sales. The fundamental
case for hiking rates does not exist, but the Fed faces push back nonetheless.

Trump's reminder that he plans to remove Janet Yellen from the chairmanship of the Fed if he is
elected does not seem of great concern to the market right now, but the type of cavalier criticisms
of Yellen he has offered would sow uncertainty and confusion in the markets if he becomes
president and plays this type of game.

SPX -- Daily

For the past month or so the argument embedded in my equity market posts has been that the market
was overbought. Since more voices were added to 'Fedspeak' in favor of raising short rates this week,
corrective action in the stock market was taken today. Louder 'Fedspeak' has cast a chill since the
most recent reports of economic activity have shown a softening with sudden, across the board
weakness in PMI new orders data reported. The new Fed concern is that continuation of super low
short rates may contribute to capital markets instability. So, the Fed may be about to create some of
the feared instability off its own bat! Whatever, the markets were taken by surprise, with the SPX
dropping sharply.  SPX Daily

In one fell swoop, the SPX has entered mildly oversold territory on a short run basis. With the
sudden advent of trader crankiness, all the profit takers may not have unloaded yet. Of interest
is that the uptrend line from the Feb. low is at about 2110 and a break below that line of support
could trigger more concerns in the market.
-----------------------------------------------------------------------------------------------------------------------
My strategy with stocks has been only to go long on deep oversolds such as occurred last autumn
and earlier this year. Viewed longer term, the market is once again hyper-extended and overvalued.

There is another personally troubling aspect about the market as well. Stocks are attractive when
the market is priced to return 10% (including dividends) annually over the long term. With a
slow economic growth environment, best I can figure is that stocks are priced to provide only a
6% long term return which presents an an unsatisfactory picture for risk capital.

Gold Price

Back on Jul.10, I argued that the gold price was overbought on an intermediate term basis and
that speculative long side interest in the futures market had reached record levels. Gold did
sell off in uneven fashion through the end of Aug., but has recovered sharply and partially this
month as traders view further Fed tightening and prospects for a another  bounce in the dollar
as now on hold.  $Gold

Gold has been choppy over the past two months, but has managed to hold its uptrend since early
this year. The chart shows that $1375 is the new resistance level. The market has lost only a
portion of its overbought status and speculative long side interest remains zealous although it has
eased somewhat. The cyclical case for gold remains but wanly positive. In the meantime, traders
are focused on the Fed and the short term outlook for the US dollar. Tough to make a call here.

Here is a link to the Jul. 10 post: Gold, Silver Overbought

Stock Market

Market Breadth
In terms of advance / decline. the market has enjoyed a very strong positive move since the winter.
However, breadth has moved into an overbought position currently when measured in terms of RSI
and against its 40 wk. m/a.  $NYAD Weekly - Cumulative

Notice that in recent years, when breadth RSI gets into overbought territory, as it is currently, both
breadth and  prices tend eventually to get choppy and show some vulnerability (RSI is the third
panel on the chart). Note as well the commanding premium the a/d line now has over its 40 wk. m/a.,
and the commanding slope of the a/d line itself. The trajectory of the a/d line has carried long enough
to be bullish for the intermediate term. It signals a strong impulse, but is now quite extended. The
MACD measure, which has nicely underscored the market's advance since Feb. is also now tending
to flatten.

Selling Pressure
A rising TRIN measure signals the volume of declining stocks exceeds that of advances. By this
indicator, the market is coming off an intermediate term overbought, but the trend of the TRIN
indicator has not as yer reversed to show development of  a weakening market.  $TRIN

As always, remember that an overbought market reserves the right to get even more so.

Oil Price

I have kept it very simple on playing the oil market this year and have stuck religiously with the long
term seasonal pattern. There was a terrific long side trade in the market during winter - spring
this year. I have backed off since, and skipped the market when West Texas crude dropped as
expected down to $40 bl. in early Aug., which is normally a choppy month. Traders know that
from a seasonal perspective, the oil price tends to have a strong positive run in Sep. and have
been positioning for it during Aug. Traders also know that the oil price tends to weaken seasonally
from Oct. through the following Jan. and some are advising clients to begin shorting the market
in late Sep. as oil demand drops after the northern hemisphere driving season winds down. Fancy stuff. 
WTIC Weekly


The chart shows resistance now at $50 and the market must clear this hurdle to rise to $60,which
would be the next substantial hurdle. The market also must clear $50 to confirm that the uptrend
that started in early 2016 remains intact.

The concerning factor here is that bullish money down sentiment in the futures market has risen
again toward near record levels. It strikes me as odd that speculative interest in oil should be so
strong and have recovered so quickly after the price blowout in 2015. Running with the large
speculators  on the long side when they are going hot and heavy has not been a wise
practice. For my part, I'll skip the long side seasonal trade in Sep. and see what the lay of the
land is later in the autumn.  Finviz Oil future

Long Treasury Bond

Fundamentals
Yield directional fundamentals turned in favor of higher yields (and lower prices) much earlier in the
the year, but since the improvement in cyclical factors has so far proven very mild, the bond has been
able to maintain both long and intermediate term downtrends despite the sharper incidence of
volatility.  TYX Weekly

The long Treasury yield shrugged off the first increase in the Fed Funds Rate (FFR%) back last Dec.
and by 'Fedspeak', may face another two increases in the FFR% in the months ahead. It remains to
be seen whether the Fed will follow through on raising the FFR% at all this year, and whether the
bond market would see such a maneuver as being pro - recessionary. Nonetheless, with industrial
output having recently accelerated, and with future inflation pressure gauges still advancing, bond
traders may be more cautious near term. Also, it might be wise to watch how the US Dollar reacts
to much more hawkish Fedspeak, as a rising dollar could short circuit some of the inflation pressure
which could arise from a faster growing economy.

The bull market in the long Treasury now exceeds 30 years, and with lower economic growth and
inflation in place over that period, traditional yield premiums in the structure of the Long Guy
have been largely stripped out. The market for Treasuries and high quality corporates has fully
embraced this era of low growth and inflation as the norm.

Technicals
Let's refer back to the chart. Increased financial regulation now limits exposure of primary capital
used by intermediaries to make markets in fixed income securities. With the bond market having
grown dramatically in size over the years, liquidity is eroding and volatility is on the rise. Even so,
my experience remains that the more Treasury yields drift up or down from the 40 wk. m/a, the
more one should think about hazard or opportunity as reversion to the longer run m/a is very
common. Notice how the negative spread for the bond is now narrowing after growing large at
the end of Jun. As well, I would argue the bond remains overbought when viewed against the
52 wk. ROC% in yield.

Also attached is the chart on the long Treasury ETF, which suggests the price may be entering
pullback mode for the intermediate term.  TLT Weekly

SPX -- Daily

The SPX daily chart is overbought on an intermediate term basis, but it is not a screamer. So, if
no happening suddenly jolts market player confidence, the charts say the SPX can drift higher
or perhaps consolidate, in the weeks ahead. SPX With Intermediate Term Indicators

The combination of an extended advance in stocks since Feb. coupled with a seasonal period
that gives any number of veteran traders and investors the jitters is giving rise for calls of an
interim top, and perhaps, one that is just over the near horizon.

From a fundamental perspective, I do not see the Fed has warrant near term to raise short rates
again and the private sector is generating more than sufficient liquidity to fund modest economic
growth. The one caveat at this location is that since the market has behaved very much in line
with my forward looking weekly cyclical indicators so far this year, it may be worth noting that
that the composite of the indicators has recently began to level off, which carries a preliminary and
inconclusive suggestion that the present improvement in the business environment could well
level off later in the autumn.

Consider this, too. From a seasonal perspective, the oil price has behaved relatively nicely compared
to its pattern this year. Should we see further harmony in the weeks ahead, the oil price should
rise seasonally through Sep., and this could give the stock market a boost.

Monetary Policy

The classical case for a Fed rate hike remains absent. Cyclical pressure within the economy has
increased lately, but remains suppressed with a few indicators such as capacity utilization %
consistent with a mild recession. My short term credit / supply demand reading remains at a
mild +5 in favor of demand, but there is sufficient private sector growth to fund the needs of the
entire real economy with excess to spare. The CPI was up only 0.8% yr/yr through Jul. Moreover,
a key element of my inflation pressure gauge, the yr/yr % change of the CRB commodities
index, has improved from a dramatic -30% seen since early 2015 to a negative 1.05% recently.
The trend of this measure is signaling higher inflation eventually, but it has been a slow rise so
far.  CRB Weekly

Through July of 2016, my proxy for US business sales is up just barely on a yr/yr basis to +0.3%.
In more normal times, when cyclical pressures are on the rise, this measure might be expected to
be 6 - 7% ahead of the prior year.

Ms. Yellen is scheduled to speak next week at the annual KC Fed junket in Jackson Hole, WY.
She probably can get way with an extended rehash of recent Fed views on policy, but unless
she can offer some assurances how nicely the economy is set to perform over the next year, it
would be helpful to develop a wider discussion on further Fed options and the issue of federal
stimulative measures.

SPX -- Weekly

Technical and Psychology
The SPX remains in an intermediate term uptrend following the breakout above 2100, which has
extended the market up into new high ground. The SPX is losing positive momentum and has
been progressing toward a substantial overbought, although it is not at extreme levels yet.
SPX Weekly

From a seasonal perspective, mid - Aug through the end of Oct. is a time in the year when traders
become jittery with all veterans able to tell horror stories from the past. Players are also concerned
about whether this year might see troublesome uncertainties regarding the upcoming election.
Since one wheel has come off the Trump bandwagon at least, anxieties may be tamped down for
now, but rest assured, efforts will continue to get The Donald squared away before it is too late.
Remember too, that there could be some zingers headed Hillary's way.

The bottom panel of the chart shows the VIX or 'fear index" has dropped down to levels consistent
with investor complacency. In sum, with the SPX nearing an intermediate term overbought, extant
signs of a more relaxed 'investorate', and the temporal progression toward a more jittery time for
market players, expect more calls for an interim top in the market.

Fundamentals
The business environment has been improving slowly, and SPX net per share finally turned up
in Q2. Twelve month SPX eps has recovered to $98.75. The market remains expensive on the
basis of old fashioned fundamentals. As testimony to how hard a slog it has been on the ground
for business, SPX profits now stand only about 7.5% above the highs seen in 2007 right before
the roof started to fall in. 


 

Stock Market -- Longer Term Issues #2

For more years than I care to remember, I have worked on the assumption that, over the long pull,
US business would grow about 6% annually. The figuring has been 3% real growth in output of
goods and services and 3% in pricing gains (inflation). This assumption has served well in many
ways, but now it is threatened. The 3% real growth factor has been based on a combination of
projected gains in the labor force plus productivity increases. In recent years though, labor force
growth has decelerated to about 1% per annum and productivity to below 1.5%. Moreover,
business pricing power has fallen well under 3%, down to 1%. Now, US business sales growth
potential is but 3.5%. If profit margins hold up, earnings should also grow by 3.5%, and if you
want to earn 10% on risk capital, then the market p/e ratio must rise steadily or the dividend
yield must be substantially higher or some combination of the both must obtain. Nothing will be
tidy or welcoming here.

Many investment strategy commentators, now mindful of seemingly more modest growth ahead,
are saying that the market is set to deliver lower, but positive returns going forward and that it
is time to set one's sights on the prospects for more modest total returns over the longer term.
But, they say, this is still bullish, since the returns on high grade bonds and Treasuries will be
lower than for stocks. If this be true, my reaction would be to not bother with stocks or bonds
except under rare conditions and focus your attention elsewhere.

The liquidity to support faster growth and higher inflation is there.With operating rates just above
75%, there are ample physical resources to support faster economic expansion and to trigger
faster capital spending to keep up as needed. The work force remains seriously underemployed
and if the US presses on, businesses will find ways to bring the longer term unemployed off the
sidelines, and in Washington, pressures can be brought to bear to create a balanced program of
of increasing immigration based primarily on skills and much less so on ethnicity. If needs be,
there are a range of fiscal initiatives that can enacted to spur growth and tax policies developed
to help finance such programs. This is easy stuff for sensible people to do for Christ's sake.

So, I am not ready to buy off on a new 'era' or 'paradigm' of low everything and since no one
is paying me to chart the fortunes of the US, I am at liberty to move on from this blog to other
stuff if people do not start to wake up and fly right soon. 

Stock Market Sentiment

Stock market sentiment turned bearish about a year ago and despite the extended rally in the market
since Feb. of this year, finally began to turn more bullish as we entered Jul. of this year. The equities
put / call ratio shows players are bearish when the 30 day m/a is above .70 and that they are too
bullish when the put / call falls to around the .55 level  $CPCE

From a contrarian perspective, investors and traders should be thinking about the long side of the
market when the p/c is at .70 or above and be looking to lighten positions when conditions are
frothy at .55. I use a crossover of .625 to demarcate the bull / bear sentiment line. So, sentiment is
currently edging toward bullish for the first time since mid - 2015, although it is well above the
.55 line, when everything is deemed to be coming up roses. From a contrarian perspective, the
market is edging toward an intermediate term overbought.

Net selling pressure in stocks hit an important interim peak in the late summer / autumn period
last year when the market began a period of intermittent sell downs that lasted through mid - Feb.
of 2016. The selling pressure for NYSE stocks has abated steadily since then, and as measured
by the 30 day m/a of this gauge is now entering overbought territory for the first time since Apr.
of last year. Net buying pressure holds forth presently and it can certainly persist and strengthen
from here. But note that on a 30 day m/a basis it has not done much better than currently over
the past five years. $TRIN

Note as well, the 30 day TRIN chart indicates a deep oversold when selling pressure rises to
1.50 on this indicator.

SPX -- Monthly

Early in 2015, I made a big deal out of warning that a downturn in the monthly MACD indicator
for the SPX did not bode well for the market outlook. And, it did not as the SPX dropped rather
sharply on three occasions through early 2016. This Aug. is far from complete, but to be fair, it
is worth noting that the SPX monthly MACD (middle panel of the chart), after falling sharply, is
now struggling to gain a positive reversal.  SPX Monthly
  
Look, this move up in the MACD shorter term line may be just a quirk, but evidence over the long
term suggests the possibility of significant directional change for this monthly indicator is often worth
attention and interest. What, beyond merely freakish speculation, could sustain a rising market?
One argument would go as follows: The US economy will gradually regain expansion momentum.
the Fed will commence raising short rates very slowly. Because there is still slack in the economy,
not only will profits begin to recover, but market players, seeing potential for further growth, will
rotate out of bonds into stocks as they anticipate weakening bond prices and some upside in the
equities market. This development is what the range of my favorite economic and market indicators
suggest. We need to see some further improvement in the US economy and perhaps, some measures
of fiscal stimulus with a new administration in Washington in 2017 and, of course, a degree of
panic in the world's bond markets which are widely overvalued on a longer term basis.

As long as my indicators provide support, I will probably stick with this view for a while, even
with recognition that stocks are already overvalued as well as noting that there are a growing
number of social, economic and political dumpster fires around the world. Besides most of the
old guys out there like me are so reserved in their thinking, that a contrarian 'last hurrah' fits
my love of irony to a T.

Oil Price

The last post on the oil price was back on May 23, when it was argued that oil was vulnerable on a
seasonal basis. Oil did enter a seasonal decline and it was also mentioned that the bulls might wait
until the end of July before dusting off the chart. So, here we are.

There are things about the spring - early summer weakness in the oil price that are a little bit
disconcerting. First, long side speculative interest in oil when the price rallied up near $50 bd. was
very nearly at record levels. Bullish, money down sentiment was way too strong in a market when
the fundamentals suggest a careful, tentative approach to rallies in view of continued sizable global
inventories. This may have set the market up for a larger than expected seasonal flop of  nearly 20%.
Second, the intermediate term weekly chart showed the first nearly strong overbought for oil in
several years. $WTIC Weekly Third, the MACD reading has turned negative, and the 40 wk. m/a
no longer supports a rising market. Since Aug. can be a choppy month seasonally, long side traders
may hold off on significant new commitments until later this month. It may also be the case that
the Brexit induced rally in the US dollar bothered oil players.

The recent heavier than expected pressure on the oil price as speculative longs are run off suggests
that even if oil gets its big and final annual seasonal lift over Sep. - mid-Oct., the price recovery may
well fall sharply short of the $60 level that looked like a 'do' earlier this year.

Liquidity Cycle

With the Fed's balance sheet and the monetary base now flat for the past 18 months, the private
sector is the primary provider of liquidity to the system. Total private funding measured yr/yr has
moved up to 5.6%. The banks are not avidly chasing liquidity with jumbo deposits down slightly
and commercial paper offerings running flat and way below pre-recession levels. With short term
interest rates at nominal levels, M - 1 money supply has been growing nicely as folks have
little incentive to move funds out on the curve. With the Fed not providing any tail wind, risks
to the capital markets are elevated, but given the modest needs of the economy, there is excess
liquidity to fund speculation in the capital markets as long as confidence holds up. Recent economic
data suggest the economy is firming up, and if a strengthening trend is developing, excess liquidity
will decline and the Fed may ultimately wish to raise the Fed Funds rate again. Short term lead
economic indicators support this view, so one has allow that investor and trader confidence may
receive a challenge in the months ahead. If the Fed begins to telegraph this view, players may
again shorten maturities enough to actually shrink the monetary base and give some traders a scare.
However, since the economy is still well below levels suggesting the development of an overheating
situation, the Fed may maintain an extended purview to encompass international issues such
as Brexit etc. and leave off any warnings for now.

As 2015 wore on, markets players took about $170 billion off the tables, but with stocks and
bonds higher in 2016 so far, that money flowed back into the markets. Given the relative
stability of money market funds in recent years, market action in the short term may continue
to be rotational pending news from the Fed.

SPX -- Weekly

Fundamentals
My weekly cyclical fundamental indicator turned up in Feb.'16 and continues to improve. The
inflation pressure gauges also turned up during the winter and are trending higher, although the
recent firming of the US dollar has trimmed the momentum of the gauges. The business strength
indicator is now firming, but remains below levels that signal the building of broad cyclical
momentum and pricing pressures in the economy. In, sum, the environment for business sales
and profits is getting better but is still subdued. The idea that the stock market can rise further
even though growth is restrained because inflation and interest rates are so low is gaining an
ever wider audience currently but is far from 'gospel'.

Back in my college days, and after an evening out, we would hit the old Blue Comet Diner in Bryn
Mawr, PA. We would order medium rare cheeseburgers and home fries, and if we were feeling that
a bit of extravagance was deserved, we'd go for having gravy ladled out over the burgers and fries.
To the point, if the 2009 - 2014 phase of the bull market was the burger and fries part, the
current market is the gravy. That's about as serious as I can be, at least for today.

Technical
The chart is nicely positive and has extended the rally from Feb. to new highs. The SPX is headed
for an intermediate term overbought but is not there yet in a robust fashion. Interestingly, the SPX
could fall sharply to the 2040 area before the current uptrend was violated.  SPX Weekly

Thoughts On 2016 National Election #2

The Democrats have made significant progress on trying to integrate the left-of-center wing
(Obama, Clinton) with a young, revived progressive wing (Sanders). They plan to join forces to
combat The Donald and the GOP, and have reached extensive compromises on party platform
and policy. It is still early to tell whether Bernie's people will gravitate into the party or remain
aloof, seeking to form a new base for the election in 2020. Hillary, for her part has been pulled
way left from where she stood a year ago. If she is elected president and begins backsliding,
the party's unity may unravel as Bernie and Elizabeth Warren may get right in her face if she
does not co-opt them. It will be critical for Hillary to court those younger folks who are
debt burdened underemployed college grads and are moving into the family formation years.
It will not be good enough if the Democrats stick only with older liberal whites and Afro -
Americans and Hispanics. In turn, young, progressive  folks need to behave themselves if
they protest the Trump campaign as now seems likely.

The GOP has made no progress toward unifying the establishment and its elites with Trump's
hard right, strongly nationalist followers. Trump blew a hole in the GOP establishment, showing
them to be interested primarily, if not exclusively in serving the needs of the rich and very
upscale. The GOP elite has so far shown itself too purist and hidebound to accept these folks
and Trump, ever the egomaniac and demagogue, has yet to introduce positive ideas to his
dis-affected white followers, preferring to play on their fears and prejudices. He may never do
so even if he wins the presidency, leaving it to others within the party who must "discover" all
the many loyal mid and downscale Republicans and how they have been betrayed by the
guardians of the wealthy.

The old Chinese curse is heavily upon us: We live in interesting times.

Better Lucky Than Smart

Back in a post on Sep. 27, 2015, with the SPX trading below 1900, I claimed that the SPX could
close out 2016 at 2160 or even a little higher. Folks were not bullish back then, so it was a nervy
call. Moreover, since 2016 is not over yet, who knows whether the SPX, now at 2161, will hold
up. Even worse, the reasoning behind the call was not strong, since the US economy and SPX
net per share has under-performed my expectations for the year by a wide margin to date.
Nevertheless, with the economy just starting to do a little better now, I am going to take some
credit. But there may be a cautionary moral here.

For old timers such as me, who know even that the market can hold up when the oil price tanks,
the suppression of earnings since late 2014 borders upon unnerving. Profits potential for the SPX
companies is finally improving, but top line or sales performance is still very subdued and it is
fair to say that market players ought to be more concerned than they are. Since the 1960's, it
has been popular to hold to the idea that the SPX p/e ratio varies in inverse relation to how the
inflation rate is performing in the economy. In this case, the very low CPI is translating into an
elevated p/e, buttressed surely by historically low interest rates. But the p/e ratio has historically
been a measure of investor confidence, too. If the low inflation and interest rates reflected an
economy that was expanding decently fueled by strong productivity growth, may be one need
not worry about a high market multiple. But the economy has moved along only slowly in a
shaky global environment with increasing social stresses evident. One can make the case that
there may be more monetary easing and even some fiscal stimulus ahead, but in classical terms,
one can also argue that the SPX is already discounting a sizable profits recovery, and one is
free to wonder what the market, strong since earlier in the year, can do for an encore near term.
SPX Daily

SPX -- Daily (2152)

The post Brexit rally since late Jun. has brought the SPX to record closing highs and has extended
the uptrend underway since Feb. of this year. The B of E stands prepared to provide additional
liquidity as does the ECB. The Fed has been standing down from further tightening and doubtless
stands ready to provide dollar swap lines if and as needed. The Brit. Gov. may be fashioning
fiscal stimulus plans, the Clinton platform has stimulus plans and a Trump presidency might lay
out trickle down tax cuts. Short rates and bond yields remain near historic lows. US forward
economic indicators have been positive since Feb. and all the happy talk about monetary ease
and new fiscal stimulus programs has for now relieved the market of its dependence on rising oil
prices.

I have raised my fair value model, based on the longer term earnings trend and earnings plowback
percent, to SPX 1990 -2120 to stand through mid - 2017. SPX net per share must rebound sharply
from below $100 to near $130 by the end of 2017, and plowback, now suppressed by weak earns.
must rebound. The SPX has sailed above fair value primarily because inflation has remained so
low and because bonds are regarded as uncompetitive. There is a wide reservoir of patience for
earnings to recover.  SPX Daily

Out of it all, it is super low interest rates and inflation that has contributed the most to make
SPX behavior haywire by historic standards. The p/e ratio reflects supreme investor confidence
that all will wind up to the good. (There is also the small matter that no one pays equities
managers for having very large cash ratios when there is any life in the market.)

Gold, Silver -- Overbought On Record Speculative Interest

The cyclical economic and inflation case for these metals is ever so mildly positive. However, Brexit
has helped trigger upsets and concerns ranging from the British Pound and the Brit property market
to the solidity of the EU and the stability of the euro banks. On top, the Yuan has been weakening
again. Safe haven demand for gold has been on the rise and the silver market is being carried up
with it in classic 'poor man's gold' fashion. I do not have indicators for PM flights like these that I
trust because nothing captures the volatility of the PM markets. The technicals now command my
desk instead. I note also that in the futures market, long side interest from large speculators has
shot up to record levels for gold and silver. If you are enamored, check out the wide range of
bug's sites.

Gold
the weekly chart shows an uptrend from late 2015 sold-out low with price now in top of rising
channel. Market supported by positive reversal in 40 wk, m/a, but is clearly overbought on an
intermediate term basis. Premium in price to the 40 wk. m/a is an elevated 14.7% but is nowhere
near an exalted level.  Gold Weekly

Silver
The silver chart is much like the one for gold, except it is more grand in that the RSI overbought
is higher for silver and its premium to the 40 wk m/a is a zippy 30%.  Silver Weekly

SPX -- Weekly

Fundamentals
Forward looking economic indicators continue to suggest the US economy will perform better over
Half 2 '16. Since I prefer the household survey of jobs obtained over the payroll report, I regard
the large - 287K - increase in employment reported today to be of less significance than the fact
that the household survey shows only nominal progress in employment since this spring, with this
latter measure more accurately reflective of the slow progress of the economy this year. Better
sales and production data are needed to firm up the case that the economy is again moving forward
at a better pace. Moreover, with the unemployment rate already under 5%, what is needed now is
better productivity growth rather than strong jobs growth and this requires more nearly full staffs
to expeditiously handle a larger order flow both in manufacturing and commercially.

Technical
A post Brexit rally has brought the SPX to a slight new closing high. The move to a new high
confirms a continuation of the rally began in Feb., albeit one which is now on a considerably more
restrained trajectory. Note especially the bounce in the MACD off its following 'red line' in the
chart just ahead. SPX Weekly  In short, the SPX dodged a bullet (Brexit).

The SPX and the indicators on the chart show a positive reversal around Feb. of this year and
continuation of an intermediate term uptrend. The market is nearly 5% above the 40wk. m/a
but is not seriously overbought on the weekly indicator readings. My suspicion is that should
this advance continue, it will prove volatile as the market is trading well above the trend line
set by the Feb. / Jun. lows. This baby is building in some roller coaster potential.