SPX -- Daily

It has been obvious for a couple of weeks that the SPX was overbought in the short run, and now
we are again seeing some price weakness. Traders of course have taken note that the market did
fail to take out resistance again at 2100 just the other day. SPX Daily.

It is hard to quarrel with the idea the market is due a rest or even a minor pullback after such a
feverish run since Feb. Moreover, the SPX remains rather expensive based on current earning
power which continues to trundle along at around $100..With inflation and short term interest
rates at nominal levels, I will be raising my fair value target range for the SPX in Jun. to 1990-
2160 from the current range of 1870-1990. This implies that through 2017, business sales and
profits need to advance appreciably with both stronger volume and pricing power to drive higher
results. The leading economic indicators I most rely on have turned higher in the short run, and
I am reluctant to turn bearish as long as future fundamental trends are nicely positive. So, if a
big selloff is in the cards for the next couple of months, I am likely to miss it. Importantly, if
the advance indicators start to flatten or weaken at some point later in the year, basic reassment
would be in order, because the question would naturally arise whether longer term earnings
growth potential is too liberal for the times we are in. Since such a judgment might have major
negative for how stocks should viewed, I am not anxious to pre-judge the issue.

You might take note that with a weaker US dollar, some equity money might shift to play the
oil, PM and commodities markets more directly as they have positive momentum currently.
Noteworthy also is whether the oil market can retain some positive direction over the next
few months, as a period of seasonal consolidation is in order.