SPX -- Monthly

As indicated in the Jan. '18 posts, the SPX in the 2800s hit a generational overbought reading which
suggested little intermediate term or 3 - 6 month upside. At 2648 today, the market remains in
correction mode with significant support at SPX 2600. In the briefest of summaries, all the
fundamental indicators I study suggest only very mild, perhaps sluggish, progress from here this
year. Looking out through mid - 2019, I have the SPX fairly valued at 2720, or 2.7% above the
current level. Taking a longer view of the chart, the recent downturn in momentum is the first since
the end of 2015, and offers little comfort.  SPX Monthly

The US has to continue to work through a very troubling Trump presidency during a period of
a maturing economic expansion. Going back to 2016, I have argued that this guy is a basic,
textbook case of egomania who, through his impulsiveness and overwhelming sense of self
aggrandizement, can wind up doing some good things and some very bad things. Given how
far the market has come since the very dark days of 2008 - 2009, I would be delighted if the
SPX could hold the mid - 2500s through his term. 

Oil Price And The Real Economy

I accepted the end of the end of the decline in the oil price in early 2016. The steady bull run in oil
has been obvious for all to see since then. However, I did not think that oil would approach $70 bl.
until some time over the second half of 2019. So, by my lights, the price is well ahead of schedule.
Sharp, extended run ups in the price of oil are rarely good for the real economy or the stock market.
Net oil consuming countries such as the US experience net income and wealth transfers to net
producers during such periods with a sharply rising oil price acting as an inflationary tax on
consumption. Too, fast oil price appreciation can lead the Fed to punish the economy with
tighter liquidity and higher short term interest rates.

These developments can punish both business earnings and p/e ratios and flatten the yield curve.

I would not hazard a guess as what the negative tipping point for the US will be if the oil price
continues to march substantially higher. Moreover, the US is now in a position to export higher
levels of hydrocarbons which will be a positive offset to its continuing dependency on imported
crude. Suffice it to say, that at some point before too long, the rising price of crude will begin
to cast a shadow on the economy and Fed monetary policy as well.

WTIC Weekly

Oil Price

The oil price is entering its third year of recovery following the big bust. The bull case has argued
that a faster growing global economy coupled with production cuts from OPEC / Russia would
allow a massive build up of crude inventories to work off steadily, thus allowing the industry to
eventually return to a reasonable balance between supply and demand. the hope has turned into
reality as stocks have dwindled from huge down much close to normal based on a five year average.
For the most part, the price has advanced in an orderly fashion. In late 2016, most industry buffs
were projecting the price of crude to stay in a range of $40 - 60 bl. well past 2017. Amazingly,
given how hard it is to forecast the price of oil, crude has remained in that range until recently.
With promises of further production-side discipline and the reduction of stocks still underway, a
new consensus has emerged in the industry with oil now seen as rising to $80 bl. in the months
ahead.  WTIC Daily

With the WTIC having just topped $68, the market is a hefty 22% above the 200 day m/a. It is
not overbought on many other technical measures, but you need to know that this is a very crowded
trade, with speculative long futures continuing at record levels. Moreover, with the big petrol build
now nearly completed for the year, the market is about to enter a very choppy period on a seasonal
basis and it may be tricky if you want to chase the recent burst.

Production reductions over the next six months or so could have a disproportionatley large
positive impact on prices. But note as well that since the industry is now firmly in the black on
the production side, there is a little extra incentive to cheat.

More on oil later in the week.

Stock Market Update

The bull case is as follows: Top line business sales growth momentum may slow some this year,
but the outlook for earnings continues excellent reflecting large corporate tax cuts now on the
book. Interest rates may rise further, but since inflation pressure remains quiescent, the Fed will
remain on a gradual course of tightening monetary policy. There is no excess liquidity in the US
system, but there may be some further rotation out of a weaker bond market into stocks. Moreover,
share buybacks could surge over the next fifteen months as companies tap larger cash flows. And,
there may be additional foreign interest in US stocks. There are exogenous factors to keep a close
eye upon, including a possible heavy duty bi-lateral trade war with China, fallout if the talks with
North Korea fail, a Syrian conflict that could go beyond its borders and a crisis if Trump blows
up the DOJ and the Mueller inquiry.These clouds could clear up rather quickly, giving investors
a clean shot at the prior top over 2800 SPX, or they could linger and force market players to make
further adjustments.

The SPX chart reflects a cloudy crystal ball. There is a bearish falling wedge pattern forming, and
the SPX is struggling to hold the uptrend in place since early 2016. But the market is holding
above its 200 day m/a and a 2600 support level.  SPX Daily