Stock Market Sentiment -- Quickie

When the equities only put / call ratio reaches a low level, it reveals strong bullish sentiment among
traders, and, as such may serve as a contrarian warning. The chart link below shows how the shorter
term p / c ratio since early 2016 has been in a persistent downtrend as the market has trended
sharply higher. Traders were way too bearish late in 2015 and early in 2016, and now have become
very nearly too bullish. This, as traders have positioned for a hoped for year end 'Santa' rally.

$CPCE Weekly

Long Treasury Bond

The long T-bond will be very interesting to watch as 2018 unfolds. With inflation running down
around 2%, the bond has given up almost all of its long run 300 basis point premium to average
of the inflation rate. Bond investors have also remained skeptical that US real economic growth
will accelerate markedly enough to create sufficient pressure on extant economic slack to push
the inflation rate above the 2% average for any appreciable period of time.

The long guy has moved up from its all time low yield of 2.1% to as high as 3.2% since 2016,
before settling down to the 2.8+% level recently. Doubtless, rising short rates over the past 12-15
months have exerted upward pressure on yields, but the rise in the long bond yield % has been
very stubborn. My bond yield directional indicator has pointed to higher yield levels but it too
has cooled off recently as US production growth has remained modest and sensitive materials
prices have flattened out after rising appreciably from early 2016 through early 2017.

So far, the bond players have not grown apprehensive that the Trump / GOP tax cut plan is going
to do much to push up either growth or inflation. Moreover, there is as yet little worry that the
combination of Fed quantitative tightening (selling Treasuries and agencies) and a larger budget
deficit resulting from the tax cut plan will create sufficient supply to put extra premium in the
bond yield. Plainly the bond market is playing like they are from Missouri: Show Us!

Long Treasury Yield %

Short Term Interest Rates

Well, I have dusted off the short rates file now that the Fed has started moving off the ZIRP
policy. Since the economic recovery began in 2009, the inflation rate has averaged about 2%
per year. My super long term short rate model suggests that the 91day T-bill should have
averaged about 2 - 2.5% over this interval. Obviously the Fed, deeply concerned about nursing
the Us economy back to life and on to a more stable footing, allowed the 'Bill' yield, or risk-
free rate, to hover near zero over most of this period. The T-bill has risen up to around 1.3%
recently, so we remain in an easy money mode when compared to inflation. You can see the
same thing by comparing the low bill yield to total business sales of around 6% measured y/y.
It is interesting to note that my cyclical rate direction model only signaled that short rates should
be rising only twice over the entire 2009 - 17 period. the first time was as 2014 progressed and second time was as 2017 unfolded. It has even been a stretch this year as business shorter term
credit demand has been increasing only modestly. The long term approaches I use show that
the Fed has indeed been very easy with money but not recklessly so.

Investor expectations for the direction of short rates next year and in 2019 reveal modest projections
of higher short rates and are based on the assumption the Fed will continue to move to restore
normality to the interest rate structure on a gradual basis. It is wise to expect short rates to keep
on an upward track through 2019 provided the economy continues to expand and the inflation rates
strengthens further .

Since there is light pressure when one compares short term credit demand against the supply of
loanable funds, economic momentum and the inflation trend will be the key fundamentals going
forward. Naturally, as Mr. Powell eases into his role as the new Fed chair, markets players will
take careful note of whether changes in the Fed's approach evolve.

3M T-bill Yield

Bitcoin Goes Parabolic

Bitcoin is the most prominent of the growing list of crypto-currencies. When I first encountered
it in 2008, its foundations were shrouded in mystery, but I think it was intended as an alternative
to fiat currency which had features that suggested that, unlike fiat currency, it was designed as
an inflation hedge which could maintain its value. As such, it should hold its value over
time when adjusted for the inflation rate. With inflation low and relatively stable in recent years,
the original concept suggested that Bitcoin's price should appreciate rather modestly. However,
it has become a plaything for wealthy individual traders and investors. Now that it has become
a high flyer, Wall Street has taken an interest and and a futures market is about to be rolled out.

It may well be, that over the long term, crypto-currency may occupy a spot along with PMs
such as gold in the inflation hedge play category. At the moment, however, it is in a parabolic
price formation and that kind of price curve rarely works out for those who come in long as
the move completes. It is tough to measure parabolic price action with accuracy, but the
Bitcoin curve looks like it may be in a terminal phase, at least for the short run.  CBTC Weekly

SPX In Longer Term Perspective

Looking back nearly 25 years, it has been an impressive period for the SPX. Net per share has
compounded at 6.6% annually which is a bit above the very long term average. However, the
SPX itself has grown at 7.8% as the p/e ratio has tilted higher in recent years, reflecting not
only low interest rates and inflation, but high confidence the longer run future will bring more
attractive performance.

The market is trading above the upper band of longer term ranges starting in the early 1930s,
again reflecting rising earnings and elevated p/e ratios. Noteworthy also is that earnings are
not yet enough extended to signify a top in cyclical economic performance.

The accompanying SPX chart makes clear the dramatic recent power of the market. SPX Monthly
Measures of longer term price momentum are running as strong as they have in over a quarter of
a century and the near term reveals no indications of decay as of yet.

When the market topped the previous historic highs during 2013, it signaled the onset of a new
bull market and not just a quantum cyclical bounce off the 2009 cyclical low. However, from
a practical technical point of view, the evidence would suggest the SPX should not do much
better than at present in the near term without some degree of negative price adjustment. The
'now' should be interesting because the boyz are hoping for a nice Santa Claus rally to wrap up
the year.                                                                                                                                                                     

Continuing Bet Against Inflation

My longer term inflation pressure gauge strongly suggests some acceleration of inflation
pressure over 2018 - 19. However, the shorter term inflation pressure measure, although
hitting a low this year, has advanced only meekly despite a nearly global advance in economic
momentum. The broad CRB commodities index is up but slightly over levels seen in mid-2016.
Even the industrial commodities composites have leveled off after advancing earlier this year.
I think it is true that despite faster economic growth, there is still significant excess plant capacity
in the world, but there are a couple of other factors worth remembering. One major one has been
the very substantial over-investment in inventories in evidence for at least the past five years. I
believe excess stocks are being worked off and that as near term supply comes into better
balance with demand, commodity prices should rise a bit faster. The other big change we have
seen since the early part of this new century has been the 'financialization' of materials markets
through rapid growth of futures trading and the development of products that both traders and
investors can access without having to deal with the actual physical volumes themselves.After
the major global economic downturn of 2007- 09, materials markets have have lost favor to
the financials reflecting the continuing imbalance between materials supply / demand.

However as the slack comes out of the materials markets and inventory overhangs are cleared,
there may well be a shift in trader preferences from financials back toward materials, one which
could be much stronger than the actual improvement of materials demand vs. supply.

With prospects for faster inflation still rather humble short term, the financial markets still
hold sway. Consider the exceptional tightening of the yield curve: 30y Treas% - 2y%

The Stock Market -- Long Term

I am projecting the SPX to reach the 3550 level by 2025. This projection is for doggy growth of
about 4.2% per annum and includes a substantial price retreat and subsequent recovery around
2019 - 2020. What's worse is that I have ginned up the SPX ' earnings growth rate slightly to
account for faster foreign sales and profits growth and also for improved inventory management
by US companies.Despite the availability of highly sophisticated supply management  tools, the management of inventories by business has been too speculative over the last seven odd years.
I am also looking for modest appreciation of business pricing power as the world slowly works
off still sizable production capacity. The growth of monetary liquidity will continue to taper
down as central banks work to regain reasonable balance between the still excessive supply  of
liquidity and genuine economic demand. This will mean somewhat higher interest rates over the long run and considerably more market volatility as the days of spoon feeding the global economy with
dollops of liquidity wane. In sum, I envision a more subdued continuation of the bull market but
one with an expanded 'normal' price range.

If I was a younger guy with a couple of extra bucks, I would be looking at investment in reasonably
valued smaller capitalization companies in both the US and foreign markets. I would only trade
the US market overall after periods of substantial price weakness and, most of all, I would be
looking to invest money privately here at home.

The following chart shows the current very elevated SPX with a horizontal line at 2200 which
is the level that would provide closer to a 10% annual total return out to the projected level of
3550 in 2025. SPX Weekly

Longer Term -- Monetary Policy

It is gospel among central bankers that provision of excessive money growth over time will
eventually lead to price inflation which will tend to accelerate to levels that are unacceptable to
the execution of sound monetary policy. The period of major quantitative easing of policy in the
wake of the Great Depression and lasting until the end of WW2 swelled the monetary base hugely
and was never corrected. There were a number of factors that contributed the dramatic inflation
of the 1968 - 82 period and it can be argued that the swelling of the monetary base in years prior
probably contributed to it. Looking out longer term, today's central bankers are concerned that the
major QE programs of recent years, if not corrected in some form could provide the raw material
for a new round of major inflation at some point down the road. The thinking here is that even if
there is no immediate risk, inflation could well up again even if it is ten years out or longer.

The mammoth excess reserves that now  sit in the world's major banking systems are of major
long term concern to the central banks. Programs to reduce the size of central bank balance sheets
directly or hold them in check by paying competitive interest rates on these reserves are two
methods under review. Suffice it to say that plans can be expected to be developed which will
provide far less proportionate liquidity than investors and traders have become accustomed to
over most of the last decade. Since such tightening of policies have not been tried before on a
major scale, there are elements of sizable risk that may only become apparent as these programs
unfold.

The Fed currently plans to experiment with reducing the size of its balance sheet in the months
ahead in combination with a program of continuing to gradually increase the level of short term
interest rates as the cycle of the economic expansion cycle plays out.

With the economic depression of 2008, the world entered a pro-deflationary environment because
the preceding global economic expansion and the initial bounce of economies after the 2008-2009
downturn resulted in the development of large excess global productive capacity. The issue
of low operating rates is next on this exploration of the long term.

The Long Term -- Overview

This post begins a series of notes on the long term outlook for the capital markets and the
economy. It is based on a half century of analytic work, hopefully informed conjecture, and
of course, sprinkles of pure imagination.

I think that by 2025 - 2027, the stock market and the global economy will fall into serious
trouble. I foresee a credit crunch that bring the stock market and an overheated economy into
steep downturns. I am looking toward China to have large scale economic and financial blow-
outs that take the US and the rest of the world down with it. I also am projecting an end to a
longer term bull market in US stocks to come to a an end which will see highs that are not
surpassed for a good several years. As well I am, projecting the broad financial environment
to become increasingly volatile by 2020 if not a little sooner.

This view presumes that inflationary pressures will gradually increase going forward and bring
about a long, long overdue capital expansion cycle which will add to the world's production
capacity and thus set off central bank tightening of the credit reins.

Through this all, my deepest concern would be for China where the odds favor up and coming
technocrats who will decide to bring President Xi's expanding political power and reach to an
end. This is projected to be an introspective and deeply unsettling period.

Although I do foresee the US bull market in stocks coming to an end until 2025, I suspect an
overvalued market to have a serious decline over 2019 - 2020 as the economy shifts away from
nominal inflation and super low interest rates up toward more "normal" levels.
______________________________________________________________________________
Note On The Near Term
The SPX is getting a touch pricey...Note as well that the intermediate term stochastic (bottom
panel) rarely goes through a calendar year without heading down toward the 20 level.
SPX Weekly

Broad Stock Market (Value Line Arithmetic)

Cyclical Bull market continues and rose to new high this week.

Spurs for new up leg since early 2016: Potential for faster economic growth as major business
inventory cycle unwound....Increase in business pricing power and higher profit margin...Promise
of large tax cut program encompassing both individuals and business via Trump...Continuation
of very low and negative short term interest rates.

Looking Ahead
Momentum of real economic growth is at or near peak with slower growth ahead...Pricing power
has been disappointing this year but may improve slightly....Tax cut program could boost corporate
profits by an extra 10% over 2018 / 2019....Passing of tax cut program in full hardly assured....Fed
plans another hike to short rates and to begin shrinking excess liquidity....Private sector funding of
economy is now merely adequate with no excess of liquidity in evidence.

Valuation shows a fully valued market with little scope to tolerate an unexpected surge of inflation
pressure or more sustained rise of short term interest rates.

Fundamental conclusion : bull market with moderate return / high risk profile because of
developing tightening of liquidity.

VLE Weekly Chart

Chart shows overbought market for intermediate term...Bottom panel shows that mid and smaller
cap. stocks are starting to outperform on expectation  that tax cut program will pass muster.

Trump Plan To Loot The Treasury

The Donald's tax cut plan offers a bonanza in cash for the wealthy and for business. And the
Congress has put itself up for sale as well. Ostensibly, to help defray the costs of the large tax
breaks ahead, tax loopholes will have to be closed. The lobbyists will be there with campaign
cash, sports tickets, girls and even job offers for the future with the private sector. As of this
moment, all the deficit hawks around when Obama was president appear to be on holiday.
There will be many debates and fights over these issues. All of them will be stale. After all,
the issue  of laissez-faire vs. the welfare state has been around for nearly 150 years here in the
US. There brawls will be especially nasty if the Ryan wing of the House starts talking up
entitlement spending cuts to help contain the budget deficit.

When it comes to the markets, there will be extra spin and bullshit thrown in with the strategy
pieces yet to come on stocks, bonds and gold. I leave it all to the rest my brethren to regale
you with their stories. 

Stock Market

I have followed the stock market since the late 1960s. I have always been a monetary liquidity guy
who like to buy when the Fed fosters a tail wind for the economy and the stock market through
providing liquidity to the system and reducing interest rates.

Finding market low points when the Fed has your back with 'easy money' has been a top priority
for me because these periods are always low risk / high return intervals. I have always been much
less concerned with trying to call market tops when the Fed has turned restrictive and liquidity
is being squeezed because I usually opt to scale back positions as the head winds intensify.

The Fed is embarking on a historic mission now. It plans not only to raise interest rates gradually,
but to shrink its balance sheet and excess reserves in the banking system. The bulls will argue
monetary policy is still accomodative, but as time rolls along, the Fed will continue to reduce
its balance sheet substantially, and the head winds will only intensify.

I am content with SPX 2500, and at the tender age of 78, I am not well motivated to do the
careful and intense research to figure out when the market will get into trouble. There are lots
of interesting things to do that do not  require such strenuous work.

Here is a link to the monthly SPX. It is overbought longer term, but the important MACD
momentum indicator remains positive.  SPX

Long Treasury Bond Yield

The 35 year long bull market in quality bonds has been one of the greatest gifts to investors in all
history. For savvy market players, it has been like shooting fish in a barrel. Moreover, it may not
be dead yet. This is because the long term down trends in real economic growth, inflation, and the
full spectrum of investment grade interest rates have not reached decisive conclusions.The US will
likely need to experience another economic recession at some point in the years ahead before we
could be sure that deflation and zero short rates may have been banished. This is why many bond
players have not thrown in the towel despite historic lows in Treasury yields in 2016.

Since this is one of my final blog entries, it would be polite of me to offer long term guidance on
the potential for the economy in the future. But, to be truthful, I have thought for years that the
US economy had the potential to grow by 2.7% per annum based on work force growth and
productivity assumptions and, as it turns out, this view has been too optimistic. Businesses have
just been too cautious to make the long term capital commitments to assure a more productive labor
force in the wake of the huge expansion of productive capacity in the 1990s and more cautious
growth in final demand so far in this century. Even today, capacity utilization in the US is a sub-
par 77%. It could turn out that much of the excess capacity is by now uneconomic and that even
continued modest real growth will eventually trigger an unavoidable need for productivity
enhancing investment. Having been too optimistic about the economy, I leave it for actual events
to tell the story.

I have a link to the long Treasury yield for the past 5 years. In the chart you will spot a horizontal
line at 33 (3.3%). If the long bond yield  rises above that level over the next year and remains
"sticky" above 3%, that would constitute a break of the very long term down trend in yield for the
bond and would be a prima facie indication that the bull was finally winding up, but hardly a
conclusive one.   TYX Weekly

Gold Price

In the modern era, gold ownership has increased despite its extraordinary volatility. There are very
long term but hardly imposing correlations between the price of gold, accumulated  inflation, the
trend of financial liquidity and the all-in costs of producing an ounce of gold. The latter has risen
sharply over the years as it has become more difficult to find rich seams that are easy to extract.
As an asset class in the modern era, gold most often comes into favor as an inflation hedge play,
and its price can languish during extended periods of low inflation.

Gold has been advancing in volatile fashion since early 2016 on expectations of faster economic
growth  an accompanying cyclical acceleration of inflation. The global economy has been doing  better, but the underlying progress of inflation has been subdued as large excess inventories have
 had to be whittled down to size. Factory operating rates have been stable but suppressed
so that a range of materials prices have  not been swept upward in a fashion typical of a faster pace
of economic growth.

The US dollar has been weak this year as skepticism developed that low inflation would restrain
the Fed from raising short rates. Gold has reacted positively to the weaker dollar, perhaps on the
premise that dollar weakness is a harbinger of future inflation.  Gold Price (Weekly).

If the economy continues to progress and there is a quickening of business inventory accumulation,
inflation should mover higher on a cyclical basis and gold holders may profit more over time so
long as investors dot not quickly decide that the Fed will notstand by and tolerate more than a very
mild lifting of the inflation rate.

Longer term, we may need confirmation  that the global economy is transitioning away from being
deflation prone back to being inflation prone before gold becomes a sturdier holding. in the mean-
time do not loose sight of the fact that equities players may continue to prefer to rotate into gold
when the stock market gets shaky.

Monetary Policy-- FINAL POSTINGS AHEAD

Short Rates
The Fed again declined to raise the Fed Funds Rate (FFR%) today. Maybe by Dec. '17 they will put
25 basis points on. There is only modest inflation thrust now and hurricane damage will be a
temporary drag on the real economy. The Fed has also been watching the economy work off very
large excess inventories dating back a couple of years. This cycle will have to run its course before
commercial loan demand finally begins to re-accelerate. Businesses are being a bit more circumspect
with their inventory policies so far this year.

Quantitative Tightening (QT)
The process of shrinking the Fed's balance sheet and the excess reserves in the banking system
 is scheduled to start in Oct. with $30 bil. monthly roll-offs and sales. The shrinking
process could accelerate to $50 billion month as early as some point next year. To get back to
"normal" the Fed will need to have about $2.5 tril. in securities on its balance sheet by late 2020.
If the Fed shrinks its balance sheet by $50 bil. a month, there will still be sizable excess banking
reserves in the system. After 2020, the Fed will have to get more careful with this QT program
so as not to leave the banking system short handed. This assumes that QT works in practice as
well as it does in theory. Risky business? Mais oui!

The Fed has presumably thoroughly studied the liquidity requirements of both the Treasury
and agency markets and has set parameters for when it may have to intervene short term in
the markets as well as whether there may be a sizable increase in daylight overdrafts. Theory
says things may operate smoothly, but in practice there may be spooky short term liquidity
squeezes. Will the markets begin to price in special squeeze risk premiums and could there
be disruptions to the derivatives markets? It may be wise to expect both in the early going. 

SPX Weekly -- Longer View

Fundamentals
In the initial economic recovery surge, US business rose to exceed 10% yr /yr. during 2011. Then
a slowdown hit which ran into late 2015. Volume growth slowed significantly and pricing power
went from 4-5% annually into negative territory. The stock market weathered this seriously
deficient performance because of the huge QE programs from the Fed and a dramatic increase in
earnings capitalization (p/e ratio). Over the course of 2015, the private sector took over from the
Fed and funded the economy. Business began to pick up sharply in early 2016 and the stock market
began a new cyclical leg up. Business sales recovered from negative momentum territory to
finish 2016 at around + 7.5% yr / yr. Very large excess inventories which dogged the economy
in recent years have been pared down sharply and earnings have recovered substantially. Sales
growth momentum, especially in retail, has slowed throughout 2017, but is at a respectable 5%
 5 % Ann. rate given low inflation.

My weekly cyclical economic indicators have been suppressed by recent hurricane damage,
but the trends through 2017 continue to suggest that further growth momentum
erosion is on tap for later this year and into 2018. At present, recently renewed broad strength in
the SPX shows that investors apparently have little concern.  SPX Weekly


The Fed still desires to "normalize" monetary policy via raising short rates further and also via
reducing the size of its balance sheet, perhaps on a systematic basis. We may be about to step
off into new territory from an historic basis. If and when the Fed proceeds on both fronts, it will
usher in era of quantitative liquidity tightening (QT). The banking system holds enormous
excess reserves from the QE programs, and it will be the surplus reserves that are cut. Even so,
if the Fed sells securities and allows others to run off, it will impact liquidity in the markets
negatively. As of today, there appears to be little concern in the markets.

Technical
The SPX continues to trend higher, but is approaching another intermediate term overbought on
RSI. Recent overboughts have only slowed down positive price momentum, but be assured some
traders are near to squeezing the sides of their chairs.

Market Breadth

The cumulative NYSE advance / decline line has made a new all-time high this week. NYAD Daily
The top panel shows the broad measure VLE (featured yesterday). As seen, it has failed yet to
recover its high, revealing the sharp slowdown in price momentum. The momentum of the A / D
line has also slowed but remains nicely positive (bottom panel). The chart also shows the RSI of
the A / D line. It is approaching an overbought level, which signals the market may be getting a bit
toppy for the short term.

Broad Stock Market

So far the broad stock market (1700+ stock composite) has traversed the seasonally volatile Aug. -
Nov.1 period with minor damage. There has been a hiccup in volatility, and the average stock has
under performed the large cap. SPX, but the broader market has tested its 200 day m/a in an alright
fashion  even if it is not entirely out of the woods on this important measure.  VLE Daily

There has been damage worth noting. Just over 50% of stocks are in confirmed uptrends. That
does not compare favorably with the SPX. Moreover, the broad VLE composite continues in a
lengthy 10 month downtrend in  comparison to the large cap. measure with this development
signalling investor caution concerning the economic outlook running out into 2018. Since my
weekly economic and profits indicators have been stagnant since earlier this year, the caution may
not prove unwarranted. It is also worth noting that unlike the SPX, the uptrend in the VLE has
been broken. At best, that signals the broad market may chart a fresh course which need not
be as positive as the run from early 2016.


Worries, such as some measure of armed conflict with NK, the short term negative impact of
monster storms Harvey and Irma, and political dumpster fires in the nation's capital seem to
have been set aside for now in favor of the longer standing meme of low growth, low inflation
and a high market p/e ratio that has sustained the bull market for the past several years.

Stock Market

I am for caution here. With a more a destructive bomb, NK has crossed a line. It is now time to try
to shoot down any further missiles it fires because it is now too dangerous to rely on guesswork
about their nuclear prowess. Who really knows whether they recognize that. Harvey storm damage
could easily reach $200 bil. and there is a an even more powerful storm (Irma) bearing down on
Florida and the coast. Potentially huge storm damage from Harvey and possibly Irma could damage
US capital stock and major relief programs could undermine the vaunted tax reform effort and
increase the complexity Congress may face in setting out a budget and raising the debt limit.
 For the market, September is going to be like watching out of shape middle aged people run
 the 100 meter high hurdles. It can be done nicely, but there could easily be falls, scrapes and
bruises.

These potentially huge exogenous factors are arriving just as investors are intensifying their studies
of whether to protect portions of 2017 gains already on the books and how best to structure portfolios
for the year ahead.

The market has been struggling to maintain solid, positive momentum since the end of Feb. If it
was way overbought for the short term now, it would be easy to tell traders to book it. But the
SPX is in neutral territory for the short run, so there are likely to be opportunists even despite
some potentially nasty short term fundamental overhang.  SPX Daily

The Long Treasury Bond %

The long Treasury bond has been a little tougher to trade since the end of 2015. Last year the yield
was slow to rise despite indications the economy and inflation were both set to accelerate. This
year the yield was slow to fall despite the sharp reversal of inflation. It remains in a down trend
mode currently even though inflation indicators are starting to inch up.  $TXY Weekly

The bottom panel of the chart shows the relative strength of the SPX against the USB (long Treas.
price). As seen, emerging, negative sentiment on stocks pushes asset allocators to rotate out of
stocks and into bonds. Interestingly, the bond has enjoyed the lower inflation so much this year ,
that it has held up relatively well against the SPX through much of the year.

I would rate the bond market as still a bit oversold at present levels. The long Treasury % is over
20% higher than it was a year ago (top panel of chart), and is falling below its falling 40 wk. m/a.
You will note from the chart that changes in the direction of the 40 wk. tend to both confirm trend
and suggest that it has further to go.

Should markets players get nervous about the stock market over the next couple of months,
top quality bond yields may decline more (and prices rise) as stock traders seek a safer haven.

SPX -- Weekly

Everyone knows this a well advanced bull market where you have to choose the most generous
valuation methods to get even somewhat comfortable. Price momentum has remained positive
but has deteriorated noticeably since the SPX hit a major intermediate term overbought at the
outset of 3/17. Weekly cyclical economic indicators suggest that both the economy and business
profits momentum have probably peaked. On the plus side, continuing low inflation and negative
real short rates have helped the SPX p/e ratio stay elevated. As well, there is a fairly strong
investor consensus that the economy is a good year away from a genuine downturn. Fewer
players are confident that the Congress can pass tax legislation in the months ahead that might
assure a longer run for the business expansion, but hope has not been abandoned totally. Trump
has fucked up royally over the past three weeks via the North Korean flap, the handling of
the Charlottesville demonstrations, and more recently, his vicious verbal attacks on top GOP
operatives in the Senate and the press. Likely tough fights ahead on the debt ceiling, the budget
and tax reform have grown more worrisome by stupid behavior from the White House. So, the
market has lost some ground over August, although there has as yet been no downside breakaway.
SPX Weekly

There may be trouble ahead in September if the SPX fails to get above its 13 week m/a and move
back up toward 2500 right quick as that would signal more extended damage to already shaky price
momentum. 

Gold Price

The gold price was trashed over the last four months of 2016. It had reached a dramatic speculative
top by Jun. - Jul. and this was accompanied by the decline of inflation thrust indicators in the
latter part of the year.  Gold Weekly

As the current year has progressed, the US dollar has weakened and the inflation pressure gauges
have been in a bottoming mode. The gold price has advanced fitfully in 2017, and has found
resistance at the $1300 oz. level. The tenuous advance probably needs for the inflation pressure
gauges to strengthen further as the year progresses. The weaker USD has not resulted in a sharp
advance in the important oil price or other key commodity composites and the lack of inflationary
follow-through has generated some gravitational pressure on the gold price.

Gold is not overbought and its 40 wk. m/a has just started to turn positive. However, intermediate
term resistance is formidable at $1300 and gold may suffer if there is another fail in the next few
weeks. Short term, gold can hold its uptrend if it can remain above $1250 on a retrenchment.

Stock Market -- Aug. 1 -- Nov.1 (3)

Trump's behavior on North Korea and then over Charlottesville have significantly undermined
investor confidence both in his ability to provide sound presidential leadership and to provide
in-depth direction for key agenda items such as the budget, debt ceiling and broad tax reform.
People are correct to harbor serious doubts about the guy and with such critical agenda items just
weeks away, The Donald has little time to turn matters around. The market has sold off in recent
weeks, but players have hedged bets only mildly so far, and many may have already abandoned
progress on Trump fiscal programs while basically remaining bullish on the 6-12 month outlook.
VLE Weekly

The broad Value Line Arithmetic has broken the uptrend line in place since early 2016 and has
violated its 40 wk m/a for the first time in two years. Momentum and breadth are eroding, volatility
is on the rise, and, as shown in the bottom panel of the chart, there are early indications the
market is setting up to change direction for the intermediate term. There is price support for the
VLE just below the current level.

The market is bending lower, but it has not broken yet.

SPX Daily -- Quickie

Long time and knowledgeable New Yorkers like myself are hardly phased anymore by Trump's
thoroughgoing egomania. But, some of us were surprised by how far he went off the rails this
Tuesday in his improvised and morally distorted press conference in the lobby of the Trump
Tower. He lost his business councils of prominent CEOs and has senior GOP elected officials
questioning his fitness to be a successful president. What was surprising was that it all happened
live and in full public view. Decent, conscientious folks (including a number of investors) have
been exhausted by the ugly melee in Charlottesville on Sat. past and its troubling aftermath,
stoked by Trump himself. The stock market took a drubbing again today as some traders started
to question how thin the ice is that they have been happily skating upon.  SPX Daily

The market has slipped into mild corrective mode with support at SPX 2400 and I am certainly
not clear on whether market players will quickly move to correct the damage or whether
more traders and investors will want to trim positions further and sit back to see if  the current
troubling political shit storm settles down. God knows, they have already given this guy the
benefit of the doubt.

Trump's competence and fitness to be president is finally coming to the fore as a factor at a time
when serious economic and financial issues are going to hit the calendar soon after Labor  Day.
Folks want to see the Trump Team's fiscal programs and hopefully intelligent outreach to the
Congress and do not want to see him consumed by bitching over Confederate statues and
symbols of a war fought over 150 years ago. Lasting damage has been done to his reputation
but his guys have to fight like hell now to get him back on the rails.

Stock Market -- Aug. 1 -- Nov. 1 (2)

Patriotism, as they say, is the last refuge of scoundrels. And, in Messrs. Trump and Kim, we have
quite a pair. I am having trouble believing that this contretemps is more than a giant Trump
smokescreen, with North Korea a willing accomplice.Trump is falling in the polls. He fumbled
his end of the health care bill and special counsel Mueller and his group are taking a hard look at
whether serious financial crimes were committed involving Trump et al and Russians. With the
fire and fury threat, The Donald has drawn attention away from increasing political weakness.
But, since there is no guarantee this is not an exercise in reality TV fakery, but is instead a crisis,
the stock market took a jolt this week.  VLE Weekly . The Value Line Arithmetic dropped sharply
this week and is at shorter term support just under 5500. Moreover, the index is set to test its 40
week m/a and has broken the uptrend in place since the latest advance began in Feb. '16. These
are 'heads up' factors for the broad market, and we'll have to see next week whether the latest
contretemps between the US and the PRNK will fizzle and provide relief, or persist and worsen
and lead real to genuine trouble for us and the market.

Market breadth last week took its sharpest drop since prior to the 2016 election. The NYSE
A/D line could be ready to test its 13 wk. m/a and the rising trend lines from Feb.'16 and the post
election rally have been broken. Note, however, that the A/D line is still well above its 40 wk.
m/a., so a longer term test may still be a ways away.  NYAD Weekly

The bottom panel of the chart shows the VIX or volatility measure. It has been in a jagged
down trend since the autumn of 2015, but last week's bounce broke that. This represents
another 'heads up' for the market.

Well then, have we entered a more volatile and corrective interval that has characterized so
many past Aug. / Oct. periods? Too early to tell I say, especially since you have a bullshitter
like Trump as the instigator.

Stock Market -- Aug. 1 -- Nov. 1

History shows that the period of August through the end of October can be volatile with no shortage
of price corrections and even a couple of crashes (1929, 1987) thrown in. It is a period when market
players critically assess what their year may look like and are also forced to look at the next year
more seriously. It has also been a time when the Fed tightens the reins on liquidity ahead of the
typical holidays easing interval toward year's end.  Seasoned investors know the history and are on
heightened alert. As well, it is a time to plan portfolio and rotational change for the following year.
So, you may find plenty of cautionary market commentary from fundamental and technical sources
show up in you in-box. For all I know, the market may skate smoothly right on through this period,
but I plan to showcase it weekly to avoid boredom from taking further hold.

Now there are contentious political issues ahead, including raising the debt ceiling, trying to settle
on a budget and the possible introduction of tax reform legislation. Tax reform could be a plus if
tax cuts come into play, or a bust if talks do not even start in the Congress or fail when they do.
Moreover, as autumn wears on there will be Fed behavior to study and speculation about who, if
anyone, might replace Ms.Yellen as chair. Finally, the Mueller investigation of Russia / Team
Trump is moving into probable cause territory with two grand juries now open for business.

I will focus on two charts. The first is the Value Line Arithmetic price chart, an unweighted index
of over 1700 closely watched issues. Secondly, comes the NYSE cumulative advance / decline
line.

The Value Line ($VLE) is trending up but has lost substantial momentum since early in the year.
The weaker positive action reflects the potential for slower economic growth over the rest of
the year which is also reflected in weekly forward looking economic indicator data. This index
is holding its positive trend line from early 2016, but just barely.  VLE Weekly

The NYAD is in a second wave up from Feb. '16. It has lost momentum this year, but is stronger
than the VLE. This suggests investor preference for large cap stocks. The VIX is shown in the
bottom panel of this chart. It is in the low end of the historic range, and we'll see how it fares
over the Aug. / Oct. period.  NYAD Weekly

SPX -- Monthly

The monthly SPX is overbought and hyper-extended when compared to its post WW2 price channel.
There is no price bubble as happened at the end of the past century, and the overextended nature of
the current market does not match the 'bubble echo' which occurred over 2006-7. SPX net per share
is expected to be right around the trend line plot since WW2. Viewed historically, the SPX p/e ratio
at about 18.7x is a hefty 2.5 multiples above the very long term average and directly reflects the
nominal level of short term interest rates and current historically low inflation. The Phillips
curve -- the inflation rate varies inversely to the unemployment rate -- has failed in recent years
as the economy has progressed slowly enough not to trigger off a bout of cyclical accelerating
inflation which has some punch to it. These developments have triggered off a round of  'new era'
thinking in which the economy is seen as able to progress without experiencing the sort of credit
crunch that could trigger off deep earnings and p/e multiple cuts (reversions to norm). According
to a growing group of strategists, it may not be the best of all possible market worlds, but is a
damn fine one. SPX Monthly

There are critics who maintain correctly that proclamations of a new era for stocks will ultimately
turn out to be bullshit and that this will, too. They will be proved right, but when a nastier time
will arrive and how well the market might do in the interim are $64 K questions. There are
features in play now -- the failure of the Phillips Curve and the growth of excess private sector
liquidity in the wake of an already lengthy economic expansion -- that are truly novel. The balance
that exists in both features now are underwriting the market's advance and given their novel
nature, signposts of imminent disruption will not be easy to proclaim directly. This is somewhat
of a 'thinking man's market' and curiously enough, those type of markets are usually weak and
are not making new highs. The best of luck to you!

US Dollar

In a July 4 post, I opined that the dollar was becoming increasingly oversold as negative sentiment
mounted. From a technical perspective, the USD has now reached critical support around 93 based
on weekly closing prices. The bears appear quite confident the dollar is about to break support and
head well lower.  USD Weekly

The Fed has relaxed some about tightening policy further in view of lower inflation currently,
 but it still seems determined to move away from accomodation down the road as the
economy is still expanding. Moreover, the Fed wishes to start to shrink its balance sheet soon.
With private sector liquidity  still plentiful, this may not be a disruptive event at all in
the near term, but eventual quantitative tightening (QT) will become more of a factor as the
economy matures further. The dollar bears may also regard the sharp recent recovery of the oil
price as also in their favor even though it may eventually add inflation pressure in the US. and
strengthen Fed resolve. The capital and financial markets have been relatively immune to the
continuing Trump shit storm so far, but perhaps the dollar bears are more anxious. The US, as a
matter of fact, is  just a few short steps away from a constitutional crisis over Trump's desire to
collapse the inquiries into Russian intervention in the US election and heavy hints of financial
wrongdoing that could involve Trump business entities.

The USD is now very oversold for the intermediate term and it seems a little odd that dollar
shorts coming on now would be richly rewarded after such a sharp decline has already taken
place.

SPX -- Weekly

The SPX is overbought for the intermediate term, is getting overextended for the intermediate, and
fully valued on the more liberal valuation measures. The weekly cyclical indicator composites did
better last week but have been running flat for most of 2017. Outside of all that, the market is still
trending higher as players use the slow growth, low inflation, and expanding private sector liquidity
environment to coax the SPX higher. Market psychology remains formidably positive even though
there is a strong consensus that the market could easily correct by 10% at some point through mid
2018. With momentum measures on high, extended planes, you need to monitor the situation
diligently.   SPX Weekly

Financial System Liquidity

The end of the Fed's QE programs did hamper the economy and the stock market for a while, but
the view here was always that if private sector funding responded positively, the economy and the
market would be OK. Strangely, the US is now moving on quite a different plane. There is clearly
sufficient liquidity to fund economic expansion and rising capital markets. The surprise has been
the steady rise in private sector liquidity preference. Historically, as an economic expansion
matures, the basic money supply adjusted for inflation tends to flatten out and occasionally go
negative as consumers and businesses run higher spending budgets. But here we are with real M-1
up nearly 7% y/y on miniscule short rates. In a like manner, my short term credit supply / demand
pressure gauge would now be running strongly positive as banks hustled to meet rising loan
demand from business. Not this time out. The gauge now sits at a -5.4, which is more indicative
of recession or the initial stage of an economic recovery. With folks more interested in holding on
to their money, one outcome is that there is now a built-in tendency for the economy to grow rather
slowly and for inflation to remain subdued. There are unusual circumstances, too. Business
inventories are continuing to run on the high side, and the Trump /GOP threat to repeal ACA and
replace it with a stingier health plan has up to 50 million consumers worried about losing coverage
or paying higher premiums. This dumb, drawn out saga is leading people to defer spending and
build liquid kitties instead.

This strong contra-move in favor of liquidity preference by the private sector provides funds to
support the markets at present, but if it continues, it will eventually imperil the economy or keep it
running at stall speed.

Investor confidence is high, but it would be nice to see stronger business and consumer confidence.

SPX -- Daily

Primary market trends remain intact on the daily SPX chart. breadth is moving along positively.
Volume is light, but that could be mostly seasonal. Momentum measures are positive, but they
have been deteriorating progressively. The weekly cyclical fundamental indicators have been
flat since early 2017, suggesting the economy will lose positive momentum out ahead. Retail
sales have already been softening and some key monthly sales and earnings measures have been
slowing. However, Ms. Yellen is now spinning the same story in a dovish fashion -- moderating
inflation -- and the Street likes this as it suggests credit tightening will proceed more slowly. My
e-mail continues to gradually accumulate caution signals from seasoned and successful strategy
people. Pressure from centers of prominence outside the Beltway are telling the Trump team
and the GOP to get moving  on stimulus programs, but Senate leader McConnell, a naysaying
'Miss Grundy' type, is trundling along slowly as he follows his own muse. SPX Daily

The chart shows the market has been bending but not breaking for months now and has been
playing hob with the 25day m/a, sending out mechanical sell signals on breaks that have whip-
sawed bearish traders.
 -------------------------------------------------------------------------------------------------------------------
I am basically done with the SPX and macro-style trades above 2450 and would have to see
the MACD (bottom channel of the chart) skitter down to -40 or so before I would consider a
long side trade. Even then, I would only use a small amount of capital. The market owes none
of us a blessed thing, and, for my part I am just thankful the world did not head into full fledged
economic depression in 2008.

Gold Price

On a global basis, indicators began to signal faster economic growth and an acceleration of
inflation in early 2016. In anticipation, there was a major speculative run-up in the gold price
from a depressed $1050 .oz up to $1375 into Aug. last year. Economic indicator data have lost
the strong upward surge seen over much of 2016, sensitive materials prices have leveled off here
in 2017, and inflation thrust measures have lost substantial upward momentum despite modest
improvement in capacity utilization. Moreover, new business order rates have been on the rise
while final sales have continued relatively sluggish, thus signaling the possibility of another
involuntary build-up of inventories. Without the anticipated follow through on balanced, faster
growth, the inflation acceleration story has faltered, and even with the recent continued weak-
ness in the USD, this year's rally in gold has faltered.  Gold Weekly 

You can probably add the failure of the Trump / GOP to advance its tax reduction / reform and
infrastructure investment programs to the gold price negative column as well. In short, gold
players have found fault with the late cycle 'reflation' story and gold has dropped near an inter-
mediate support zone of $1200 oz. As well, without evidence of higher and sustainable inflation,
gold traders have not been able to surmount the  $1300 level except for brief periods in recent
years.

Since I am a strongly growth oriented guy who thinks gold can help out portfolio returns
during periods of faster cyclical inflation, this has been a frustrating period amidst some false
starts. Since I also view the USD as technically oversold I am content to let the gold price
go ahead and challenge the $1200 level for now.

US -- 50 year Health Care Racket And Still Counting

I live in the semi-boondocks and have been bitten around 30 times by deer ticks over the years.
My luck failed to hold in recent weeks, and I contracted Lyme Disease. I am recovering OK
because we caught it very early. I received the bill for the diagnosis yesterday from the local
medical group. The retail charge (before Medicare) for a 20 second look at the bulls eye rash
emblazoned on my chest to confirm the call was $973.00. There you go!

US Dollar

The argument here for the past 6-7 years is that the dollar should rise over the long term because
trade fundamentals will run in the US's favor and dollar outflows through the trade window will
slacken. I have envisioned a slow process of USD recovery with the Buck  settling in at 100
by 2020. On fundamental grounds, I see it as reasonable now in the 92 - 93 area. USD Weekly

The dollar has been retreating from a very heavy overbought position reached at year's end 2016
and continues in a clear downtrend, heading for intermediate term support at a little below the
94 level. The fun part here is that with the negative sentiment intact, it is reaching one of the
deeper oversold positions it has attained in recent years. Trading the $ is has not been my cup of
tea, but it should be enjoyable to see if there is a rally in the USD before too long.

SPX-- Weekly

 The post- election rally in the SPX to new highs has had a close call or two but has retained its
footing. Breadth and volume have remained OK, but price momentum both for the SPX and
issues seen individually is waning. As July wears on the SPX  will have to maintain weekly
closes above 2400 to keep the rally intact. A break of trend from the 2/16 base would require
stronger corrective action, so if the SPX falls short of 2400 on the weekly closes, it need not
be fatal. My weekly cyclical economic fundamental indicators are breaking a bit weaker and
this suggests the upthrusts in these data sets which provided major support to the market since
early 2016 may have ended. However, to date, the flattening of forward looking economic data
in evidence over much on this year has not undermined the SPX, so we'll have to see whether a
breaks of trend in theses data composites threatens investor confidence. SPX Weekly

SPX -- Weekly

The SPX is still running OK positive, but the broader market, featuring breadth and unweighted
price indices like the Value Line Arithmetric ($VLE), are lagging and falling behind on trend
momentum. At this stage, there is a growing preference for the larger cap. more liquid names.
My weekly cyclical fundamental economic indicators have been on the flat side since late Jan.
and suggest a loss of positive economic momentum out ahead. Unweighted market measures are
performing more in line with the economic data weeklies as the SPX rolls on. I have argued in
recent weeks that the SPX had a reasonable shot at rising above 2400, but I have run out of short
run insights to support a continued advance and see no compelling reason for the SPX to move
above the recent high of 2450. Weekly SPX

The bottom panel of the chart shows the relative strength of the Value Line to the SPX. As can be
seen, the SPX can easily outpace the VLE for the intermediate term, but a market led by a broad
array of mid - cap. and smaller cap. favorites is healthier and more sustainable.

Of note here is that the Senate is set to take up the nasty health care bill this week. If the Senate
leadership can horse trade its way to passage of the bill, it might boost the spirits of investors
who are still considering the large tax cuts for the wealthy in the bill as a set-up and lead-in
to the tax reform proposal.

Oil Price

Back on 2/5/17, I posted that the oil price was quite vulnerable to a price correction given the
record level of speculative interest in the futures market and the parabolic recovery in the price
since early 2016, when WTIC crude made a multi year low of about $26 bbl. Since the 2/5 post,
the oil price has retreated by nearly 23% and the trend has turned bearish.  $WTIC


There has been a strong market observer consensus for some time that oil would trade through
2017 in a range of $40 - 60. The sky high speculative long side interest has been sorely dis-
appointed, and now crude is edging toward the bottom of the consensus range. Even though
speculative interest in going long crude is now far from the peak, it remains sizable. But, the
price is now approaching an oversold condition on RSI, its first since early 2016. The price
trend shown on the attached chart suggests a test of the $40 mark out ahead and if it does not
dive sharply below that level, oil could be interesting as a long.

SPX -- Daily

The SPX continues in a well pronounced uptrend since 2/16, one that includes a clear breakout to
record highs in the wake of the Trump election victory. The enthusiasm generated by the Trump
victory reflected a fast building of consensus that US business was on the verge of a new bright
era of faster growth. May be that there would be an acceleration of top line real growth, but the
real kicker here was  the outlines of tax reform and dollar repatriation programs that alone could
boost SPX net per share by 25% over the years immediately ahead in concert with a new health
care program that would significantly line the pockets of the wealthy at the expense of most others.

The market has continued to rally this year even though the Trump agenda cloud cover reflects his own doing. Without the Trump stimulus measures, profits  are not likely grow more than 4% a year going forward after this year's recovery. There are other market players who may be content without the Trump stimulus play provided there is no significant acceleration of inflation and assuming the Fed will continue to move very slowly on its plan to raise short rates. This latter view is reflected in the narrowing of the long Treas. yield curve this year by about 50 basis points.

The market has run well out ahead of the Trump stimulus outlines since the faster rate of inflation
that would accompany stimulus laid over an economy that is already well along in its expansion
phase would force the Fed's hand on rates and probably force down the market p/e ratio. In turn,
if the Trump plans die in Congress, and we have to trundle along with low earnings growth, why
chase the current trajectory of the market?  SPX Daily

Broader Stock Market

In the post last week, (scroll down) I included the monthly SPX chart but focused on how the Big
Money has viewed valuation in the market via The Rule of 20. From a comparative perspective, this
is a rather liberal way to value the market, but it helps explain whose been in charge. The monthly,
weekly, and daily SPX charts are all trend positive but are also overbought. This post takes a
broader perspective and not one that is capitalization weighted.

First, I show the equal market weighted Value Line Arithmetic index of 1700 + stocks (almost
half of all publicly trade individual equities).  $VLE Weekly The index made a new closing record
high this week, and remains on trend form the Feb. '16 low. It is not nearly as overbought as the
comparable SPX. I am happiest when the VLE is outperforming the SPX. Such has not been the
case since 12/16, and signals moderately weakening confidence in the broader economic picture
Performance of the VLE is much more in line with my weekly cyclical fundamental indicator
which been flat since around year end 2016.

Next, I have attached the cumulative NYSE advance / decline line. It too is on trend and at new
record highs. The A / D line is getting heavily overbought for the intermediate term, but note
that with breadth in an advancing market, overbought conditions can hang around for weeks
before there is a break.  $NYAD Weekly

SPX Monthly And The Rule Of 20

Starting in the 1960s, capital asset pricing began to shift focus, tying prospective asset returns to
the levels of the risk free rate (91 day T-Bill yield) and the rate of inflation. In broad terms,
equity strategists started tying the rate of earnings capitalization (the market p/e ratio) to the Bill
yield and inflation, with the market p/e ratio set to vary inversely with the levels of short term
interest rates and of inflation. With some empirical foundation, strategists came up with the 'the
rule of 20' which lays out that the market p/e ratio = 20 - the inflation rate. Thus if underlying
inflation is 2%, the SPX should trade for around 18x net per share. There are different sorts of
issues and problems with the formulation, but it has retained significant popularity.

Using a long term trend line, SPX net should be around $135. out through mid - 2018 and the
market should trade around 2430 (18 x $135.). Under this method, the SPX is reasonable or
fairly valued. There is an issue that investors have not fully broached yet. How reasonable is it
to assume that SPX net per share will grow at 6.5% in the years ahead when the top line or sales
growth may struggle to reach 5% and companies have been squeezing cost structures for years
to boost profit margins? This is why a number of well seasoned  strategists are warning that in an
era of real growth below the long term average, investors must brace for lower returns.

For a good while this year, investors were not troubled because they saw the Trump / GOP nexus
pushing stimulus plans that would boost top line growth somewhat and lower the corporate
income tax. But Trump's troubles and a GOP that lacks the unity to push stimulus programs
through raises questions about whether SPX earning power will be strong enough to sustain
the 6.5% growth trend for the next several years.

Whatever your strategic approach to the market may be, the preceding three paragraphs offers
good insight into how the Big Money plays the game most of the time.

Attached is the SPX Monthly Chart. Pay careful attention to the continuing positive reading
of the monthly MACD indicator -- It does not whipsaw often.

Stock Market

The week before last, the boyz were hollering for a break above SPX 2400 as they feared having
to deal with a double top. And they got one! The market loves to punish the vocally demanding,
but not this time. Last week's advance keeps the post election rally alive, at least for the large cap
sector of the market. The trend up from the Nov. low remains sharp, but there remains little room
to avoid a break in the weeks ahead. The SPX remains moderately overbought on a momentum
basis. It was allowed last week that it could break above 2400 in the short term and there is still
a little bit of room to push it higher. However, the SPX remains heavily overbought looking out
3 - 6 months. SPX Weekly

The weekly cyclical fundamental directional indicator has been flat since the end of Jan. this year,
but it has improved nicely over the past couple weeks reflecting the remarkable performance of
the new jobless claims indicator which has dropped sharply to a 44 year low. Total civilian
employment is up only 1.0% y/y, but it is the jobless claims data that wags the dog here. I would
like to see more positive breadth among the weekly data, but initial claims has been a trader
favorite for years. Among the indicators, sensitive materials prices have turned weak since early
in the year. This development has been a nice positive for the bond market and it may also account
partly for investor preference for large cap stocks.

From a fundamental indicator perspective, the cyclical case was very strong for equities for most
of 2016, but has weakened appreciably since earlier in this year. the SPX is holding its uptrend
nicely in 2017, but without strong and comforting cyclical support.

SPX -- Weekly

My e-inbox is stuffed this week with indications of growing pundit / strategist impatience. This
is the first such suggestion in 2017, although it should not be a surprise given the continuing
flat market and a volatile week. I am not receiving  much bearish commentary, but rather
intimations that its high time for more upside or, maybe it will be wise to think about reducing
exposure.

My forward looking cyclical economic indicators have continued on the flat side since the end
of January, and, like the market, have not evidenced much in the way of volatility. The Congress
has taken up tax reform with emphasis on revenue take neutrality, and it is possible traders are
starting to miss Trump team leadership on a more stimulative set of guidelines with a clear focus
on significant deficit financing.

The weekly SPX chart shows the market is still working off a serious intermediate term over-
bought situation including now double top resistance at 2400. The market's range over the past
few months has been tight and there has not been the sort of sustained corrective action to
provoke thinking that a fresh buying opportunity might be at hand.  Similarly, there has not been
a test of the 40 wk. m/a since last autumn. I do not have a strong view on market direction near
term, but my discipline says not to trade extended overbought situations on the long side. The
chart does suggest there is upside through 2400 but maybe not very much.  SPX Weekly

SPX -- Daily

I plan to do a weekly update before the end of the weekend, so this piece is intended to focus
on the short term as revealed by the SPX Daily

There was a sharp and overdue dip this week as the Trump farrago captured The Street's focus
for a day, but news that the Congress is taking up a large tax reform program led to some cheer as
the week ended. The price gap alluded to a couple of weeks ago with the announcement of the
Trump tax proposal was closed by the sharp sell off on Wed. The partial rebound toward week's
end closed half the distance after the big downer on Wed. The market is still laboring under the
SPX double top at 2400, which marks clear short term resistance. There is short term support for
the SPX a little above the 2320 level.

The MACD looks a little nasty, but the SPX is now in relatively neutral territory.

Gold Price

In early 2016, economic fortune turned positive for the gold price in the form of faster economic
growth and accelerating inflation. It prompted a dramatic cyclical run for gold off its low in the
$1050 oz. area up to an unsustainable peak of $1375 in Aug. of last year when speculative froth
in the futures market bubbled up to dramatic new highs.  As expected then, the gold price corrected
to a deeper than expected low near $1125 late last year. That translated into a 7% price gain for the
2016, which seems appropriate to me, after all the dust settled. My shorter run economic and
inflation indicators have both lost substantial positive momentum so far this year, so the typically
volatile rally in gold in 2017 has been too strong on the inflation front in my view. Now there are
a bevy of potential geopolitical risk factors still ahead for 2017 ranging from North Korea on to
elections in Iran through to the Brexit saga, more elections in Europe and unsettled global
diplomacy reflecting The Donald in his role as wrecking ball of the old world order. On top,
with the US expected to be less dominant in the growth of the world economy this year, the
US dollar has been weakening so far in 2017 (which is fine by me).  So, gold has been getting
some support from both geopolitical uncertainty and a weaker USD, which has lost some haven
status.

With a correction underway in the USD, the gold price has some traditional appeal even though the
recent rally in anticipation of trouble after the French election has not materialized.  Gold Daily 

SPX -- Weekly

Fundamentals
Measured y/y, business sales and profits remain quite strong. Forward looking economic indicators
still suggest growth deceleration out ahead, but even this case is not closed yet. The future inflation
pressure gauge has weakened after a strong period of recovery starting in early 2016. Inflation may
also be set to moderate out ahead. Thus, the faster economic growth / inflation thesis which was
the bedrock for the strong up leg in the stock market since early 2016 hasn't yet collapsed, but has
dissipated considerably since earlier in the year. The market rally over the past couple of weeks
primarily reflects Trump talk of 'massive' tax cuts later in the year and hopes that he will keep
the infrastructure and offshore and dollar repatriation programs alive. If you are in it to win it
with The Donald, simply be prepared to continue to wade through the Trumpian horse shit that
will flow steadily our way.

Technical
Basically, the market remains overbought for the intermediate term with mild corrective action
quickly remediated in recent weeks. The market has now formed a 'secondary top'. This may
merely be incidental, but it could also be the prelude to something nastier as happened in mid-
2015. The SPX is also trading at the top of its 20 week Keltner channel, a development that
commands extra attention.  SPX Weekly

Trump And The Russians
There is plenty of smoke here, but how big the fire is is far from clear. In making FBI Director
Comey walk the plank this week, he has alienated the FBI to its core. Regardless of how the
investigation proceeds, figure that at some point in his tenure, the boys with the short hair cuts
and dark suits will take a large bite out of Trump's ass. Even a Trump built dyke will spring
serious leaks if it comes to that. 

Oil Price

Wicked isn't it? Confidence built strongly over the course of last year that the oil price had made a
decisive bear market low just under $27 bl. in Feb. 16. What followed was a powerful seasonal
rally into Oct. There was seasonal weakness afterward, but since Nov. of last year the market's
trading pattern has been somewhat off - kilter seasonally as debate has focused on whether
OPEC / Russia production cuts would allow rising demand to balance off supply such that, by
later this year, we could see crude rise to $60. By early 2017, speculative long positions in the
oil futures market had reached record levels. That intense speculation plus already dramatic yr/yr
% price momentum produced a dramatic overbought in the market as I suggested in posts earlier
this year. I argued that there would be at least a price "hiccup", and we have seen such over the
past couple of months after the normal or seasonal round of price strength over the Feb. - Apr.
failed to pan out. WTIC Daily

Indicators reveal a marked improvement in global economic demand over the past year. However,
the rate of progress may have peaked, at least temporarily. On the supply side of the oil equation,
US output recovery has exceeded earlier expectations, with the  NA rig count having more than
doubled since last May and capacity utilization at the well head now having risen to over 93%.
Even Libyan crude output is topping expectations. So, the story of supply / demand balance this
year is less sturdy now than it was. Moreover, speculative long positions in the oil future have
been sharply reduced, but are now in a gray area where further liquidation cannot be discounted
even if the pace of redress slackens. Seasonals have not been that important, but it should be noted
that Jun. ahead is normally a weak month.

The upshot here is the game of guessing on the direction of the oil price is now more tenuous
 in the near term. The technicals here are mixed. The oil price is in a volatile short term down-
trend and is behaving poorly against its 200 day m/a for the first time in quite a while. On
the plus side, the market is oversold and even though timing measured in days is not sure,
there is a rally out there before too long.

The VIX Volatilty Index

I make limited use of the VIX index. However, when the weekly index falls into the 10 -12 range,
there is a clear suggestion to expect volatility in the stock market to rise out ahead. This means
that it would be normal to expect some corrective action, but it certainly does not imply that it
will be major. Even so, the current nearly historically low VIX does suggest that when the market
moves into a more volatile period, it can certainly last a while and be a little spooky.  VIX Weekly

SPX -- Monthly

The SPX remains in a cyclical bull market and is experiencing its third leg up since the bottom in
early 2009. The third leg commenced in Feb. '16, and was confirmed during the past year by a
positive turn in the very important monthly MACD measure.  SPX Monthly

It is very difficult to judge how far and how high this leg may carry. There is sufficient capital
slack in the US economy to carry the market well into 2019 even though the labor market is getting
tighter. Also, there are plans to be debated in the Congress to cut taxes, repatriate foreign retained
earnings and develop a sizable infrastructure program. It seems at this point that the Trump admin.
would prefer to fund most of the contemplated tax cuts and increased spending on infrastructure
projects via substantially larger Treasury and agency funding. The size and funding of these
programs must pass muster in a Congress which richly embodies the deep political, economic and
social divisions in the US.

Since the first powerful surge of economic recovery which completed over 2010 - 2011, the pro-
gression of economic expansion has been slow (real growth) and low (modest inflation). The Fed
has choked off growth of basic liquidity since the end of 2014, and is now following a policy of
gradually raising short term interest rates. Headwinds have replaced powerful tailwinds on the
monetary front and the market has moved from a low risk / high return environment to one of
rising cyclical risk and less assured returns.

With both labor force and productivity growth running low, future business sales and earnings
growth potential are running well below long range experience, the stock market is reliant on
a continuation of low inflation and interest rates to remain competitive in the capital markets.

The stock market is once again running above the upper band of its price range starting from
the end of WW 2.These periods can extend for a few years, but downside price risk is rather
high even though a bear phase may not now be imminent.

Investors are so keenly interested in the Trump admin.'s stimulus programs because they forsee
accelerated economic and earnings growth coupled with probable moderate Fed tightening and
faster but not skyrocketing inflation that would combine to give them a shot at earning excess
returns for a few years. Absence of such programs seems to beckon dreary and risky times as
well as lousy bonuses for investment managers and rising career risk in a business that is not
short of capacity.

So, there could be some market downside if the Congress ties these stimulus outlines up in knots
and confounds all the equity investment mangers who are hoping for a new lease on life.

SPX -- Starry Night In Harrisburg

I'll get to the Harrisburg, PA bit in a minute, after some preamble. Back on Apr.14 (scroll down), I
suggested the SPX was nearing a flashpoint. The indicators were negative, but the market was
fast approaching a short term oversold. It hit a low point, and bounced a little last week, before
catching fire for the first two trading days this week.  Confidence was helped over the weekend
when part one of the French election went as expected, but remember as well that The Donald
announced last week that an outline of the tax cut / reform program was to be announced this week.
He "kited" the market yesterday with the announcement that a large cut in the corporate tax rate
could well be proposed, and the Treas. Sec'y added fuel to the fire by hinting that such a cut would
be financed by borrowing, with the resultant stronger growth to "pay for" the cut. This brings us
to the starry night in Harrisburg. In his first 100 days in office, Trump has produced a thin slice or
two above jack shit. This Saturday he holds a rally in Harrisburg, and hopes to cover very anemic
performance by touting his tax plan and bragging about how well the market has done since the
election. Maybe he will pull it off, maybe not.

As he tries to pull the market into his world, the short term economic indicators continue to suggest
that a flattish market is the best prospect. The rest of the week will be busy in DC. The boys will
need to sign off on keeping the gov. open; there will be more from Trump on tax cuts; and there will
be feedback on the tax plan and the wealth care er, health care plan from the Congress. As well, with
the nuclear submarine USS Michigan docking in South Korea to complement the USS Vinson
battle group now (presumably) in position in the Sea of Japan, it will be young Mr. Kim's chance
to pop off.

Attached is the SPX Daily chart. What is that old rule that price gaps are eventually closed?

SPX -- Weekly

Fundamentals
The stock market has been in a strong up leg since Feb. '16,  a move that brought it to a new all-time
high as Mar. of this year began. The weekly cyclical economic indicators turned positive around the
Feb. last year and powerful momentum for this indicator set appears to have provided the requisite
underpinning for the market's advance. The indicators are forward looking and it may be important
to note that this set has now been flat since Jan. of this year, suggesting economic momentum may
slow out ahead. In turn, the SPX, which hit an interim peak at the outset of Mar., has been in
moderate corrective mode since. The market hardly moves in lockstep with the indicators, but the
suggestion here is that, barring an upturn of the indicators, the SPX should continue on the flat
side. As a secondary factor at this point, inflation pressures have recently eased, and this may keep
the Fed from more aggressive tightening action over the near term. A less aggressive Fed is a
positive for stocks, but since the progress of the SPX over the past year has been fueled by expec-
tations of strengthening progress of business sales and earnings, there could be an adjustment
process for stocks to complete, especially since the development of new fiscal measures to
stimulate economic growth may be getting pushed further out in time as the Trump team figures
out how to work better with the Congress.

Technical
The SPX has been working off a substantial intermediate term overbought. There is nothing in
the weekly chart to suggest this process is about to end. Adjustment is already well underway
with the RSI and oscillator measures, but the important MACD measure has just turned negative.
Moreover, the SPX is still at a 4.6% premium to its 40 wk. m/a. The premium is contracting,
but it is still significant. There is no inevitable negative conclusion, but do not ignore the
evidence.  SPX Weekly

SPX Daily -- Crossroads Ahead

The SPX has been working off an intermediate term overbought. In the meantime, the daily chart
shows that corrective action is tilting toward a flashpoint.  SPX Daily

Based on closing prices, the SPX has been in a downtrend since the end of Feb. Notably, the 25
day m/a has rolled over and the SPX has failed to rally above it. The market is in a mild
oversold condition, and both RSI and MACD have declined near important testing points with the
30 day ROC now in mildly negative territory. Corrective action has been moderate so far,
but the shorter term indicators show the worst readings since the recent market upturn began in
Nov.

I have been wondering for weeks whether the Nov. rally would follow the other two which took
place since the market turned up back in 2/16, and ultimately finish up with a test of the 200 day
m/a. That would be compelling symmetry, but there is hardly enough logic in the market to make
it happen. Even so, it's heads up time from a technical point of view.

We roll into Easter weekend with tensions again running high on and around the Korean peninsula.
There is The Donald to contend with and new leadership in Seoul. The odds are that the US
command is telling the President to cool his jets and wait to see if his new best friend, President Xi
of China, has any magic to work that gets us all off the hook. Market players do not seem very
concerned, but always keep in mind that this particular area of the world is strewn with mis-
calculation through history.

I plan to post again on the weekly SPX chart by Sunday evening.

SPX Weekly -- Quickie

The SPX was knocked off the rally trend from Nov. and now has turned weak on the MACD
indicator.  SPX Weekly

The market has been working off a substantial intermediate term overbought and although there
has been some downward pressure in recent weeks, there has been no decisive break yet to shift
market player attitudes away from a bullish posture. As outlined in the 3/26 SPX Weekly (scroll
down), fundamentals suggest continuation of a flat market.

Gold Quickie

Tensions between the US and Russia helped the gold price this past week. Moreover, with Rex
Tillerson, US Sec'y of State and a Putin pal, scheduled to meet with Russian Bigs next Tues. in
Moscow, there could be additional  US / Russia diplomatic fallout ahead. Because the USD also
rallied this past week, the gold price might require more tensions to stay afloat in the short run.
The indecision in the market is captured by the fact that gold closed out the week just around its
40 wk m/a.  Gold Weekly

Gold (GLD) -- Weekly

The pace of global economic recovery since the Great Recession ended in 2009 has been slow, with
cyclical inflation low. There was a speedy interval from mid - 2009 and running into 2011, which
was when gold, freakishly, entered a price bubble. The subsequent blowout came to rest at the end
2015, when the gold price had fallen down a little below the all in cost of producing an ounce of
the stuff.  GLD Weekly

The economy started to regain some growth momentum in 2016  as did inflation and the gold
price, although highly volatile, has trended higher off its post bubble low. Bottom line, gold has
advanced at a muted pace since the low as it should given dollar stability and a still modest set
of economic expansion and inflation data. From a technical perspective, gold is in rather neutral
territory in terms of oversold / overbought and its premium or discount to its 40 wk m/a. In fact,
the metal is about to tackle its flat 40 wk average presently. Failure to break above the "40" would
be a negative.

Speculation about a Trump pro - business policy in favor of faster growth (and more inflation)
has eased greatly in recent weeks as markets players reassess the programs' outlines in terms of
whether they are doable from a political perspective. There is more intensive questioning about this
issue, but the towel has yet to flutter over the ropes by any means. The USD rallied nicely after
the election, but has drifted lower recently, and is in the process of testing its 40 wk m/a, but
to the downside. If sentiment in the markets again begins to favor the Trump stimulus plans,
the dollar could rally and this might put some short term downward pressure on gold as players
buy stocks instead. If sentiment about Trump's ability to get his way weakens further, the dollar
could come down more and gold would likely be favored. $USD Weekly

The economy could well slow down some time later this year as could inflation pressure.
Everything equal, that could lead to a trading range for gold. If the Trump plan passes muster,
that will help gold down the road as would a nasty turn in US - China trade policy which may
also hit the Trump docket.

SPX -- Weekly

Fundamentals
My weekly cyclical fundamental indicators have been on the flat side since the end of Jan. Since
they are forward looking, there is a suggestion that the Apr. - Aug. period of this year could see a
slowdown in the progress of business sales and profits momentum. The SPX has tracked the
indicator well since Jan. 2016, so a flat market could continue for a while. On the plus side, there
are some preliminary indications the recent thrust upward of  the y/y CPI may dampen before
long and perhaps take some of the pressure off the Fed to hike rates quickly.

Trump / GOP Opera Buffa
The American Health Care Plan blunder revealed advanced buffoonery in both the White House
and in the Congress. This first disastrous try at serious policy making should, in my view, knock
200 points off the SPX forthwith. But, for all I know, The Street may well try to put a more
positive spin on this serio - comedy to keep up interest in the pro - business tax and infrastructure
programs still on the docket. The alleged dalliance of Team Trump with Russians to undermine
the recent election and, perhaps, to reset  US foreign policy to a more kindly stance toward
Mother Russia is now a brisk double dumpster fire that still requires attention.

Technicals
The SPX is in the midst of working off an intermediate term overbought condition. The post -
election rally has been very resilient, but with some slowing of profits growth out ahead and
the recent AHCA fiasco set to prompt at least a little shiver, you might keep in mind that
longer view trend support is at SPX 2200 - 2250.  SPX Weekly