Falling oil prices have held the market back of late. Worries are that if oil prices continue to fall, there will be a major hit to earnings but also a serious threat of defaults in the high yield markets. The market doesn’t want high oil prices, but they also don’t want much lower prices. Probably, a steady price somewhat higher than what we currently have would be ideal.

In any case, the futures markets might be giving us a hint that the bottom in oil is somewhat near. A market is in “contango” when the futures price is greater than the spot price. As the futures contract comes close to ending, the futures price and the spot price have to converge. A market that is in “contango” has traders essentially betting that the spot price will rise, otherwise their speculation will end in a loss.

Per a report provided by Ned Davis Research, the market as measured by the 5-year futures contract over the 91-day perpetual contract is at an extreme. Less than 2008 but on par with 1998. Such an extreme came close to marking the bottom in those years. In 2008, oil fell 79% and in 1998 it fell 59%. Currently, oil is down 60%.

However, buying oil-related stocks based on a bottom in the price is usually best a few months after the bottom is in.

The SPY fell by 0.81% for the week making it three consecutive weeks of losses. The market is 2.9% off its closing high of 211.99 and was 3.5% off that number Wednesday.  The VIX closed the week at an even 16.00 and has so far peaked at 16.87. So we really haven’t seen much of a decline and there is no significant fear in this market at that moment, in other words, there may be more to go.

The big story this week is the continued ascent of the US dollar. The strength of the US economy as well as the “towering” yields offered by US treasuries compared to anywhere else in the world have put the USD on straight path north. While the stronger dollar may not have a significant impact on the real US economy, it will have an impact on earnings in the SP500 which have significant exposure to overseas business. Lower possible SP500 earnings is holding the market back, at least for now.

Investors are also waiting on the Fed meeting this week and if the word “patient” will be removed from Fed guidance. That would mean a likely increase in June, instead of September.

The Fed increase is not a done deal and there is still a lot of debate about its merits. Bond King Jeffrey Gundlach in a conference call on March 10 is against it and said it would be a “blockhead” move in light of a fragile US economy as well as negative rates overseas.

Another factor impacting the market is falling oil prices. Oil dropped 10% to $44.84 per barrel.

The SPY was down 1.5% for the week and the market fell for the second straight week to close at $207.50. We are now 2.1% off of the closing high of 211.99 on March 2. The big hit to the downside was on Friday as the SPY was down 1.4% due to a positive jobs report.

Non-farm payroll increased by 295,000, which was 60,000 more than expected. Yes, that is good news but in the world of the stock market good is often bad and bad is often good. The worry is that this might push the Fed to increase interest rates from their artificially low levels sooner rather than later, as in June rather than September.

In a recent blog post Mark Cuban writes that we are in a tech bubble that is worse than 2000. He is not referring to public companies but to the private equity market. The difference is that back in 2000 the companies were public and there was liquidity to the market, today,there is minimal liquidity for many of these investments.

Such public investments include equity crowd funding. Cuban estimates there are about 225,000 “angel” type investors overall.

Cuban writes “I have absolutely no doubt in my mind that most of these individual Angels and crowd funders are currently under water in their investments. Absolutely none. I say most. The percentage could be higher.”

“…the only thing worse than a market with collapsing valuations is a market with no valuations and no liquidity.”

It was the strongest February since 1998 as the SP500 advanced 5.5%, after a weak January (-3.1%). This is the second year in a row that a February advance more than offset a January decline and these are the only two times it has happened since 1950.

The market was helped by oil prices stabilizing, and concerns lessened that Greece would default. The anticipated increase in interest rates appears to be delayed now until September at the earliest.

Here are some out of the ordinary ETFs that might be a good measure of what is going on in the economy:

FLAT – if the yield curve is flattening
STPP – if the yield curve is steepening
CEW – emerging market currency fund
CCX – commodity currency fund
CPER – copper
STPZ – less than 5-year TIPS fund
LTPZ – 15 year plus TIPS fund
TTFS and PKW – buyback funds.

Legendary investor Irving Kahn died on Tuesday. Kahn was a student of Ben Graham and the founder of Kahn Brothers. Kahn even assisted Graham on the classic book, “Security Analysis.” Kahn is one of the original CFAs and he took the exam the first time it was offered in 1963.

“I prefer to be slow and steady,” Kahn said in a 2014 interview with the U.K. Telegraph. “I study companies and think about what they might return over, say, four or five years. If a stock goes down, I have time to weather the storm, maybe buy more at the lower price. If my arguments for the investment haven’t changed, then I should like the stock even more when it goes down.”

“I learned from Ben Graham that one could study financial statements to find stocks that were a ‘dollar selling for 50 cents,’” Kahn told the Telegraph. “He called this the ‘margin of safety’ and it’s still the most important concept related to risk.”

“I would recommend that private investors tune out the prevailing views they hear on the radio, television and the internet. They are not helpful. People say ‘buy low, sell high’, but you cannot do this if you are following the herd.”

“You must have the discipline and temperament to resist your impulses. Human beings have precisely the wrong instincts when it comes to the markets. If you recognise this, you can resist the urge to buy into a rally and sell into a decline. It’s also helpful to remember the power of compounding. You don’t need to stretch for returns to grow your capital over the course of your life.”

Irving Kahn was 109 years old.

The SPY was up 0.70% this week. Greece agreed to a 4-month extension with its creditors and then gave the market a strong push late Friday. Economic data continues to be solid, the Markit Flash PMI report was 53.5, which is a 7-month high. Europe is starting to show some slow signs of economic growth.

In our 2/7/2015 update we wrote that “if job trends remain strong at some point workers will get a bigger piece of the pie,” and on Friday WMT announce that it will begin increase wages for employees. The point was that if a strong job market leads to wage inflation, that will cut into fat profit margins.

Will Denyer of Gavekal Dragonomics issued a report that shows that the ratio of the US stock market value to the GDP measures at 155%, topping the 150% level in 2007 but short of the 180% level in 2000. When comparing the US stock market level to global GDP, the measure comes in around 37.5%, which normally has been a historical resistance point.

Denyer said that the indicator does not mean the market turns down tomorrow, or the day after, and that easy money policies can continue to push up asset prices to level that may not be justified in a normal environment.

To add to the overvaluation argument, Robert Shiller said he as thinking of lowering his own exposure to US equities in favor of depressed European companies. Shiller’s CAPE ratio is now at 27.5. It was 15 in 2009.

Low interest rates have helped support high stock markets in the US. Michael Feroli, chief US economist at JPMorgan says the bank’s models indicates that recent increased employment could push up wages and inflation leading to a faster rise in rates than anticipated.

The offset to some of the valuation arguments above is the global economy is improving, recession risks appear low, and the market continues to remain technically strong. So while the chance of a correction at anytime continues, as long as there is no recession on the horizon the risk of a bear market is low.

The market rallied 3% and oil shot up 7%, on top of a 6% gain the prior week. Employment numbers were very strong and treasuries were down on the week as 10-year yields climbed 0.26 to 1.94%.

US companies have been operating at very high profit margins for several years now as wages have stayed close to flat. If the economy continues to accelerate and if job trends remain strong at some point workers will get a bigger piece of the pie, and that will likely result in profit margins beginning a long anticipated reversion to the mean.