SPX -- Monthly

Fundamentals
The market carries a 'tight money sell' rating. In addition, the deceleration in monetary liquidity
growth in real terms has been substantial enough that it might only be a few months before a
recession vulnerability warning arises. Should such a warning occur soon, it does not imply that
recession is imminent, only that the economy is entirely dependent on its own internally generated
resources to fund or underwrite continued economic expansion. Since internal resources, and
especially private sector credit flows, are not leading economic indicators, the continuation of
economic growth is a much riskier proposition and is contingent on the continuation of good
balance between the forces of economic demand and the means to finance them profitably.
Empirically, the economy can expand for at least a year after the vulnerability warning pops up.

The US economy has been growing slowly and the leading indicators I follow continue to suggest
slow going. Even so, it is worth remembering that 2016 is off to a stronger start and regeneration
of improved economic growth momentum should not be dismissed out of hand. The same may be
said for business profits.

There is no case yet for saying a cyclical bear market is in the offing; only that economic risk
is about to bottom. From a stock market perspective, equities prices can still rise, but without
a stronger liquidity backdrop, market risk is now significantly higher from an economic
standpoint.

Corrective market action over Half 2 '15 has reduced valuation risk. It is too early say whether
continued slow economic growth will lead investors to demand more in dividend yield and be
unwilling to pay the current p/e ratio freight.

Monthly SPX Chart  (SPX)
As I warned late last winter, the rollover in the monthly MACD to the downside was a signal of
concern as it warned of an open ended loss of positive price momentum. Other indices have
faired more poorly, but damage to the SPX has not been that severe yet. Note that the RSI
panel in the chart shows hesitancy to break below 50 and that the market itself continues to
rally off levels a bit above 1800 on the chart. The chart holds plenty of appeal for the bears,
but I have yet to join this group.