FAANG BANG

With a collective slap in the face, Mr. Market has taken some of the complacency out of this market. A Goldman Sachs note sent to clients last week, entitled "Goldilocks and the three hikes", reminds me of the story of the emperor with no clothes. They simply pointed out the inconsistency of a 2.20% bond yield with a growing economy and a tightening Fed. The resulting profit-taking was swift and highly correlated, evidence of the crowded behaviour of the ETF-driven tech bubble.

As we outlined last week, the Fed is painting the economy into a corner by flattening the curve at a dangerously low level. The Wednesday press conference is now critical in messaging the next steps. The Fed balance sheet question now looms large as a driver of sentiment.

Knee-jerk rotation into value oriented banks and energy didn't last long and as I write the tech sector has caught a small bid. We will need a convincing move in the reflation gauges in order to believe in the moves there.

I'm waiting to hear the Wednesday messaging around the much anticipated hike in administered rates before jumping on the bandwagon.

Risk Model: 2 out of 5

The bull/bear ratio and the copper/gold ratio have stabilized but have yet to definitively move into the buy zone. The VIX made a pathetic attempt at the 50 day and failed, so at least that's a positive. Gold backed off.

There is no momentum in this narrow market and the quarter-end window dressing is likely to reward the winning trade (tech) until July wipes the slate clean.

Got golf?