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