Fundamentals
Cyclical directional indicators are tracking positive. Excess financial system liquidity is positive
but shrinking owing to faster economic growth and inflation. With the Fed having frozen Its part
of liquidity since late 2014, I favor trading the market and only going long on deep oversolds.
Business profits are beginning to recover but remain under peak 2014 levels.
Technical
The market rose to a new high this week. It is modestly overbought. Watch to see if the MACD
can stage a positive reversal. Note that uptrends now in place have not been tested by any pullback.
The market is a tad over 5% above the highs of 2014. The advance to new highs in 2016 counts
as a flimsy bull episode in my view and awaits more robust positive confirmation.
SPX Weekly
Valuation
The market is clearly overvalued on the various measures I use. Fair value presently lies in a range of
SPX 1990 - 2050. Currently, the SPX is trading about 9% over the mid-point of the fair value range.
The premium primarily reflects the fact that market players have yet to trim the p/e ratio as they
should when the inflation % accelerates. Folks are now smitten with the presumed economic benefits
of a Trump presidency and the evidence at hand that balanced fund managers and hedgies are
reducing bond exposure in favor of equities.
Sentiment
Bullish sentiment is elevated among advisory services, but is fairly neutral among players who
are actually trading the market via options.
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