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Current Market Conditions

April 20, 2016

Here is the bottom line on current market conditions. I continue to maintain that we are in a short term bounce top within a medium term sideways market but are leaning into a long term slower bear market scenario. And once the current top is in, the market should roll over to continue on with its primary bear market.  I am trying to come up with a bullish interpretation of what is developing, but I cannot.  Yet for the last 18 months shark tooth decline is exactly what the market has been doing. The S&P 500 closed today exactly where it first crossed in November 2014. In the interim, its been a roller-coaster of rips, dips, spills and thrills.  I feel, the market might act exactly as it did during November-December of 2015 distribution before finally breaking down in January 2016 and accelerating lower.  The business cycle is long in the tooth too and corporate earnings are eroding.

The below information is "What It Is."  Watch trends of the stock market - it’s not about your return on principal but return on your principal and interest.  (All chart data is as of 4/15/2016)

I am awed by the U.S. M1 and M2 money supply.  Additionally, take a look at the Consumer Price Index (CPI) and the U.S. Dollar (USD).  We hear daily how the rest of the wrold is also adding to the money supply.  Physics = "Something has to give."

From The Board of Governors of the Federal Reserve System

Components may not add to totals due to rounding.

  1. M1 consists of (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) traveler's checks of nonbank issuers; (3) demand deposits at commercial banks (excluding those amounts held by depository institutions, the U.S. government, and foreign banks and official institutions) less cash items in the process of collection and Federal Reserve float; and (4) other checkable deposits (OCDs), consisting of negotiable order of withdrawal (NOW) and automatic transfer service (ATS) accounts at depository institutions, credit union share draft accounts, and demand deposits at thrift institutions. Seasonally adjusted M1 is constructed by summing currency, traveler's checks, demand deposits, and OCDs, each seasonally adjusted separately.
  2. M2 consists of M1 plus (1) savings deposits (including money market deposit accounts); (2) small-denomination time deposits (time deposits in amounts of less than $100,000), less individual retirement account (IRA) and Keogh balances at depository institutions; and (3) balances in retail money market mutual funds, less IRA and Keogh balances at money market mutual funds. Seasonally adjusted M2 is constructed by summing savings deposits, small-denomination time deposits, and retail money funds, each seasonally adjusted separately, and adding this result to seasonally.

Some areas are looking better:

This is just for educational purposes, and I am not making any specific recommendations. This is simply a guide to assist you in thinking about your own personal position, how much risk you are willing to take, and what your expectations are.

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