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.
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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.