E From A Macro Perspective

From a macro perspective – we’re experiencing an S&P topping formation that may or may not turn ‘south’ rapidly, or persist in a distribution process. After all that’s happened in the past year-and-a-half, it is again dangerously extended.

During this time we’ve had some marvelous moves outlined, primarily biased to the downside (solely on spikes and not after the crowd capitulates after breaks), and hugely profitable for those who played it appropriately. The point being that the ‘real’ policy mode of the Federal Reserve began to squelch stimulus quite a while back, initially with tapering, avoiding more QE, and then nervous firming of the ‘Funds rate’; only to have trepidations about further moves, just as we hear over the past two weeks, yet again (even Thursday two Fed officials made just slightly less dovish, if not hawkish, comments; and the markets briefly shook).

It’s dangerous when a market has nothing of substance sustaining it other than dependence on Fed monetary support; and it’s dangerous when the Fed tailors its remarks to transparently seem almost timed to buttress financial asset levels, which actually is not its mandate.

What does all this mean as we forge hellbent into Q1 earnings season? It likely means the meanderings of the late phase of this rebound cycle face rising risks; whether or not we get an almost immediate exhaustion of the persistent stability that’s followed the rebound, or whether the horsing-around persists a bit longer.

When one glances at the ‘dome’ we’ve shown at the end of these reports, or at tonight’s more lateral resistance chart; what you see is a ‘range’ from here up to the prior year’s highs, from which vulnerability increases. That’s why I made the remark yesterday that if one established a short position (or similar) pressing up against the 2060 S&P level, for something of a bigger picture bet on forthcoming consolidation at minimum, that something like 2070-80 could suffice as a mental stop area; allowing this irresolute chop only a modicum of ‘wiggle room’.