Standing Eight Count

It seems the return to favour of the Growth segment of the market is giving the market a second chance. Now that the bond market has settled into a new range and the overbought financial/cyclical trades are taking a breather, Tesla, Google and Microsoft can take up the slack and keep the market going.

The 'standing eight count' seems to have given markets new life.

But what if the narrative swings back to the growing strength of the economy and the potential for sooner than expected tightening? We can see it in the Chinese market already. Below is a chart showing the recent non-confirmation of momentum in the Chinese market. Prices are reacting quickly to the slightest bit of tightening by Chinese monetary authorities

Shanghai Stock Market

The 200-day line is likely to be tested on the $SSEC. This is normal, healthy action in a bull market. As I showed last week, this is the point I plan to get more aggressive on risk assets. For the S&P500 we are a long way from this line (below). Fed policy intentions will be revealed this week. Most investors assume that they will upgrade their growth forecast and consequently 'pull forward' their expectations of when rates should be hiked in the "dot plot". I think markets may absorb this news with equanimity but you never know.

S&P 500

So I am laser-focused on the Fed message and the market's reaction function to it. Tomorrow, Mr. Powell is likely to signal his intentions. I'm not so sure that he will have as much wiggle room as he thinks if the bond market continues to get smoked into the rising tide of growth revisions.

I'm raising cash here.

Risk Model: 3/5 - Risk On

The overbought market conditions are fighting to stave off the corrective pull-back that is desperately necessary, but nowhere to be seen. This morning's VIX collapse in advance of a hugely consequential Fed meeting is puzzling. The complacency of investors is getting unnerving. It reminds me of the Ed Sullivan Show where the guy spins plates on sticks.

When cyclical/ financials take the day off, people just switch over to growth stocks for the day.

Seems easy, doesn't it?

Until gravity takes over.