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I feel we are facing significant headwinds moving forward because of the loose monetary policy of the Federal Reserve, the refusal to address the core problems in our financial system and the incredibly opaque derivatives market that has yet to be regulated or even cleared on open exchanges.

The root of the problem

To expand on the first point of loose monetary policy, from my own research I have gathered that the government has put at least $12T, possibly up to $30T worth of guarantees, backstops and other forms of insurance against the prospect of another meltdown. In addition the Federal Reserve has, in my opinion, illegally taken control of AIG through programs they are not authorized to participate in. These actions and other measures have transferred the risk of collapse from the private sector to the US government and to the Federal Reserve.

Interest rates remain below 1% in a range of 0.00% to 0.25%. Combine that with the infusion of US dollars the Federal Reserve has given to other central banks around the world and we have literally created a carry trade scenario. Not only are we repeating the mistakes of Japan, but we are going down a path where should a geopolitical event or other significant negative catalyst occur the repatriation of dollars could create a collapse across nearly every asset class.

Risk grows as stability wanes

This environment that has been created to engender a recovery is not only unsustainable, but it has created more risks than had existed beforehand:

#1 Should another market panic occur where AIG’s credit default swaps are due, the US Treasury and Federal Reserve must cough up the difference. This would lead to another series of bailouts and funneling cash to foreign and domestic banks at the tax payer’s expense on bets that never should have been made and were downright idiotic.

#2 Big banks are BIGGER now than before: JPM, BAC, WFC, USB and others are now larger and present a much more significant risk to the system should, say for example, one of their mark to make believe off balance sheet assets implode — potentially bringing down the entire world financial system, again.

#3 The stress tests were fraudulent and did not expose the off balance sheet asset liquidity vacuum these banks are suffering from. Papering over fraud never leads to a sustainable rebound.

#4 Tax receipts are down across the board – how can counties, cities, states and the Federal government hope to control deficit spending if they are not collecting as much in taxes? They can’t sell bonds forever, bringing me to my next point.

#5 Commercial real estate and corporate bonds are headed towards a potential implosion in the next few years, with major mall holders filing bankruptcy and many occupants of office and retail space vacating as they downsize. Corporations also must refinance their debtload which is ever growing while the global appetite for these bonds is diminishing.

#6 We in the United States are very seriously facing the risk of a sovereign debt default in the future. This prospect is made even more serious by continued bail outs, war spending, entitlements and other programs that are completely unsustainable with our country’s $14T debt burden.

#7 Such a sovereign debt default would lead to a currency collapse and that could engender either an environment of hyperinflation or heavy deflation — all depending on where the chips fall at the end of the day.

Inflation or deflation?

While speculators are now hedging for inflation and shorting the dollar in any way possible, there is another market we must pay close attention to. A market that significantly dwarfs the size of the commodities markets as a whole. That is the US Treasury Bond Market. Last I checked it was $33.5 trillion dollars. I find it interesting that gold is touching $1111.00 an ounce while 10 year bonds are at only 3.625% — who is wrong in this gigantic game of chicken?

Either the folks buying gold are insane to believe inflation is the bogeyman to fear or the much larger, much more influential and liquid bond market is crazy because they obviously fear deflation. Why else would a rational human being buy a bond at 3.625% that they must hold for 10 years? Such an instrument would be less than worthless in an inflationary environment.

First the principle value of the bond erodes as interest rates rise, and secondly the yield would not make up for the rate of inflation. So we are experiencing a financial conundrum right now. Either we are on the verge of a deflationary collapse or a hyperinflationary currency crisis. Which way we’re going to go has not yet been made clear to me because I feel the markets are being propped up, even manipulated.

The most dangerous bubble

Why would I pose such an idea? Let’s start with the P/E of the S&P 500 which is now well over 25 (and was at one point over 100). How can anyone feel that these stocks are reasonably valued with such an absurd P/E? Most of the decrease in P/E from over 100 to over 25 has been from companies downsizing, firing employees, hiding bad assets and not organic growth. In the current global macroeconomic environment there’s no feasible way earnings can catch up, so in my opinion we’re already in a bubble.

Bubbles of the past were not as dangerous because the US government never had such a large stake in the market. Now we’re talking about a situation where if the credit, bond, currency and/or stock markets implode, so does our sovereign debt and currency potentially.

Investing is now speculation

Investing in this environment is difficult at best. During the March panic I was a buyer in the high S&P 600s of just about any material, technology, financial and energy stock I could find, but once we got to the 900s and I saw P/Es jump beyond levels I felt were fair valuations I became a seller of my holdings. I also invested some in to silver, foreign currencies and other commodities during the March lows, but also have since taken a lot of those profits off the table.

We are in a very risky area for people to be entering the market. I don’t feel these lofty levels are sustainable nor do I think the valuations are rational. I don’t know when the rally will end, but I do know that any parabolic move usually ends very badly and any time there has been a carry trade in the history of money it has ended painfully for all the speculators who did not exit in time.

Another collapse coming?

In closing I will say that before Rome’s collapse the government was shaving gold and silver coins down to create more currency. They also had a severe debt crisis. The shaving and continued spending led to awful inflation that eventually catalyzed the empire’s downfall.

History is being made every day and the decisions are going to shape the face of America’s future. It is imperative that we start to take our medicine (meaning we must face the financial problems instead of ignoring them) and deal with the overwhelming burden of debt before it swallows up everything left.

There are no shortage of credit problems to navigate through with mortgages (both subprime and now prime), credit cards and commercial lending, potentially indicative of a deflationary credit squeeze for the everyday person who will no longer be able to borrow to buy everything based off their future earnings or assets.  This contraction could also have very negative effects on small business growth and hiring, too.

It’s because consumers and small businesses account for the majority of the US economy that I think we are wise maintain a defensive posture as most of the multi-month rally’s asset allocation haven’t taken this matter in to focus yet.  I believe we are well out of bounds of realistic equity valuations and the dollar is being sacrificed by the printing press of the Federal Reserve, Treasury and Congress to temporarily support financial markets.

Once this liquidity flood induced euphoria wears off there will be severe consequences to the US currency, bond and equity markets that most investors don’t seem to be aware of or have not positioned themselves for.

Sources:

http://market-ticker.denninger.net/uploads/KeyCharts/Credit-y-o-y-large.png

http://www.federalreserve.gov/releases/g19/Current/

http://econompicdata.blogspot.com/2009/09/consumer-credit-freefall.html

http://www.marketwatch.com/story/troubles-shift-to-prime-borrowers-wsj-2009-09-04

http://www.boston.com/realestate/news/blogs/renow/2009/09/mortgage_market.html

http://www.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUSN0829660420090909

http://www.reuters.com/article/newsOne/idUSTRE58752720090908

At this point there is some distortion between energy and metals which have a direct relationship as energy must be expended to mine the metals. usually the ratio is 10x the price of a barrel of oil for an ounce of gold, but now it’s been in a range of 12.5x-15x.

Either oil is very undervalued (which is unlikely) or gold is overbought at these levels.

Today’s close of the stock markets and oil seems to indicative of a risk repricing that began last week.

960 (around the 50 day moving average) on the S&P 500 and $65 a barrel on light sweet crude are my downside targets short term, but if either breaks we could trade to much lower support levels.

In addition, when examining the huge sell off in natural gas prices, it’s near certain that energy has more negative catalysts than positive because industrial utilization continues to lag despite the green shoots propaganda that we keep hearing.

Finally, there are a growing number of bears calling for a shake out of March’s lows coming this fall because of a new leg down in commercial real estate that will bleed liquidity out of the equity markets and REITs.

The Chinese sell-off seems to be spreading as US markets are experiencing profit taking bringing them below 1000 on the S&P 500 and leaving them oversold by many short term technical indicators.

What’s next?

My forecast isn’t too optimistic given the convergence of many different economic complications. I think that the risk remains very high that the market faces a significant correction given the irrationally optimistic rally we’ve experienced since the March apocalyptic head-fake.

Real world valuations simply don’t match stock prices and future profits are not going to come from anything more than further cost cutting. The picture being painted is anything but rosy.

Add to that a looming commercial real estate crisis, a bankrupt government and an FDIC that’s running out of insurance for depositors as banks continue to fail.

What happens when the next shoe drops?

Consider this: We’ve had a jobless recovery and everyone is optimistic. People feel like the worst is behind us, yet unemployment remains remarkably high. Then, the unexpected. Another economic meltdown.

If we were to go in to a downward economic cycle and reenter recession here after this artificially orchestrated ‘recovery’ the devastation would be deep and pronounced. Unemployment could rise exponentially as commercial real estate implodes, forcing malls to shutter and tens of millions of Americans out of work.

The materialism capital of the world

The United States has 600% more malls than any other country on Earth. Our economy is very consumer driven, yet right now the consumer is so leveraged in to debt they can’t afford to spend much. This is a broken and unsustainable model that will continue to eat away at our economic core until we see a more sustainable (and modest) implementation of capitalism.

Because the economy is consumer driven and because consumers can not spend we have a conundrum that bank bail outs can not solve. How do you engender an era of confident spending by selling off the average consumer’s future with gigantic amounts of debt that in no way benefits the debt holder? Certainly there has to be a better way.

The real crisis is coming

It is my opinion that we have yet to experience the true crisis that will manifest out of the past few decades of reckless unimaginable greed. No amount of reflationary policy can adequately combat the implosion of credit capital that has drained liquidity and forcibly deleveraged the global financial system.

The only success the government can claim here is that they have temporarily staved off this crisis by sacrificing the fiscal solvency of the Treasury. Ultimately the United States is the most indebted country across its respective private citizens, corporations and governments. This national debt costs the country $500,000,000 per day in interest.

The national debt is largely owned by foreign countries like China, Japan, UK, Russia, Saudi Arabia and others. Does this sound like a sustainable plan for the future of our country? Can we truly continue to borrow our way out of crises we’ve created by ignoring our looming debt and anything resembling fiscal responsibility?

This is traditionally a light volume week with little trading and low volatility. Nominally the last few days have been pretty flat compared to past trading weeks. I think we’ll see things pick up again after labor day. We’re still quite overbought and due for a pullback, perhaps to the 50 day moving average around 950 on the S&P 500.

Now that the equity markets around the world have rallied about 50% or more it seems that interest rates have heightened around the world as well. In the US 10 year bonds were as low as 2% in March and now have neared 4%.

If home owners need to refinance their mortgages to lower rates, but those rates are no longer available how can we have a sustainable recovery in housing (which is always a driver behind economic recoveries here)? Doesn’t this lack of available credit and affordable interest rates undermine the recovery efforts?

In addition, with many bright minds believing China was the key to the recovery how does China’s correction affect the views of equity investors? Is the global rally in question?

It looks like safe haven assets like bonds, yen and dollars are becoming more attractive vs. risky assets like commodity currencies, commodities, equities and emerging markets in general.

I think we may be entering the next leg down as Mohamed El-Erian and others have expressed the same sentiment I have. The rally is running on fumes.

We probably will retest the lows in the market and bring some fear back in to the trading. VIX is up 6%+ today and we’re seeing a lot more put buying as institutions either bet against or insure profits in stocks.

Consumer sentiment was terrible and there is now some question as to whether the FDIC is solvent after taking over Colonial Bank. All the Maes are probably completely toxic now, too. I hope foreign central banks continue their generosity or the falloff here could become a disaster.

A repeat performance of the bear market rally breakdown seems to be in the works now.  The first downside target is 875, then I believe we could see a large sell off to around 775-800 if that level breaks.  After that a retest of the lows is almost certain.  The image below illustrates the pattern on a three month / one day bar chart.  There may be some support at the 200 day moving average around current levels as the market is oversold.  A bounce before continuing downward is not out of the question.

With the last legs of this rally really more of a sideways trade on very light volume, we’re starting to see some signs that a rolling over process has begun.  While there is plenty of reasons to be a bear, the most compelling reason to be a bull was the notion that things were getting worse at a slower pace.  The idea was that we overcorrected to the downside in March, facing what appeared to be a depression, and having (at least temporarily) taken that off the table, we see very attractive valuations.

We’ve had a nice run already

After about 40% off the bottom, I think we can say the valuations have gotten ahead of themselves.  In addition, there are no signs of an earnings-led recovery or any real green shoots that indicate we’ll be seeing a pronounced rebound in the economy.  Most of the optimism is coming from China, which seems to be hoarding commodities for its own hedging game against the falling US dollar.  While hunger for raw materials is good for the markets, if it is not a genuine appetite that stems from growth, but rather a desire to build a materials portfolio for the Chinese government, then much of the optimism in energy, materials and other related sectors is overdone.

The biggest driver is not behind the wheel

The consumer is facing more foreclosures, credit card defaults and an increasingly tight employment picture.  This is not the atmosphere that is condusive towards a consumer-led recovery.  Consumers probably have 5-10 years before they can start to lever up again on their credit.  Other emerging markets are attempting to build consumer economies, and facing tremendous headwinds from populations who treasure thrift rather than spending.  The appetite for material possessions is not nearly as strong nor are earnings per capita elsewhere enough to sustain the vacuum left behind by the American and European economic implosion.

Greenflation not back, yet

Green energy is a promising sector when crude oil is above $100.  Right now the motivation is just not as strong with consumers or companies to make big moves in to more environmentally sustainable energy.  I believe that once inflation makes energy less affordable the appetite for green energy will increase.  This may be a while off depending on how fast the global economy can pick up the slack left behind from the last bubble.

Climb a plateau once its peaked…

So where is the catalyst for the next rally?  What could drive equities higher?  The only way we’re going to see a tremendous rally from here is if we see much more currency debasement and intentional inflation.  That kind of manipulation could continue to lead markets higher, but at the cost of the currency that equities are priced in therefore nullifying much of the gains.

Or fall right off?

I think the market is setting up to fall.  I’m not so sure we’ll retest the lows or not, but I do think we’ll see some more selling as fundamentals begin to play a center role in the stock market again.  On a technical note, we may be building a pretty significant head and shoulders pattern on the S&P 500.  Today’s action seems to confirm the right shoulder.  We could see a retest of 875 or lower if it continues to play out.

Global systemic risk is back in fashion, as Blackrock buys Barclays Global Investors, creating a combined $2.8T balance sheet, much larger than the US Federal Reserve.  If this newly formed titan ever had large its own liquidity problem it could threaten to once again bring down the world financial system.

Of course Blackrock has a number of curious aspects to it as well.  Merrill Lynch had a 50% stake which Bank of America gobbled up along with Merrill in a backroom deal with Uncle Sam.  Now Bank of America has a large (supposedly non-voting and non-influential) stake in this behemoth.  I believe this is cause for concern, because among other duties, Blackrock helps the Federal Reserve manage some of its assets and performs consulting as well.

How does Bank of America have a stake in a company that has some influence on the value of its assets in the eyes of what is supposed to be an independent central bank?  This question has come up in congressional hearings and been asked by pundits as well as traders.

Apparently there’s absolutely no rules to the game as long as the biggest banks survive.. at least for now.

Now that we’re off the 925 S&P 500 support area we see a rolling top forming on major indexes here and around the world.  A pullback in equities and commodities may occur as a result, providing opportunity to further short the market and gain more exposure to commodities during buying opportunities.

I believe the short term target could be as low as 900 on the S&P and interim if we see a large correction we could retest the 875 area.  The main determinant factors here will be the news flow, economic data and hunger for raw materials.

The correction could also remove the possibility of the 50 day moving average crossing above the 200 day moving average, which fund managers are looking for as further indication that the market is worth buying in to at these levels.

Bulls continue to cling on the notion of green shoots, but the green shoots look more like poison ivy according to many traders who are closely tuned in to the technicals and fundamentals.

What do silver, the Australian and Canadian dollars all have in common? They should all be considered good inflation hedges for US dollar-based portfolios.  The Australian and Canadian dollar are commodity-based currencies, because their underlying economies are very much driven by the production of commodities such as gold, silver, oil, industrial metals, etc.  Silver itself is very undervalued against ever increasing real world demand for coinage, jewelry, electrical and chemical applications.  The combination of all three assets, in two different asset classes (foreign currencies and commodities) provide strong upside as the dollar weakens and world growth comes more from emerging economies than industrial economies.

The Australian dollar ETF can be bought through symbol FXA, the Canadian dollar ETF through FXC and silver through SLV.  I currently have holdings in all three assets and advise those concerned about inflation to consider what their long term investment goals are and how these assets may or may not fit in to their strategy.

The consumer confidence number bounced significantly.  This is generally  supposed to be positive to the currency, but because the US dollar has become a carry trade currency through the zero interest rate policy, now  good economic news has an inverse effect on the US dollar, moving it lower.

It’s hard to believe that consumers are spending more money when their 401ks, house values and wages are down significantly, unemployment is rising and even if they are spending money retailers have marked down items so low their margins are razor thin.

The problem is that when there is bad macro news, such as the rumor of the US losing its AAA rating, the US dollar sinks, too.  US equities can’t continue to rally if the currency continues to sink at this rate.  All of the consumers will lose their purchasing power

As the rally appears to be running on fumes at this point, I’d like to say that I was a little early saying to sell it before, but one never can trust a bear market rally.  That’s what it still seems like we’re dealing with, too.  The technicals were powerful during the 8 week surge, but we do not yet have a Dow theory buy signal (need a close above 9125) or a break above the 200 day moving average on the S&P 500.  Now the charts are beginning to look more exhausted as the overbought conditions are worked out.  Longer term the trend remains down as we seem to continue with the 10+ year double top formation playing out on the S&P 500.

Banks led the rally up and now they are beginning to give way as fundamentals point to a more pessimistic picture than the prior trading action of their equities might suggest.  While I do feel that the substantive cash injections, ZIRP cheap liquidity and stimulus have filled part of the vacuum left by the implosion of Lehman and the deleveraging process, there is simply too much enthusiasm around when this alleged recovery is due to transpire.

We are quite literally in the midst of a complete reinvention of how the world does business and in that process there likely will be further dislocations and market abberations before settling in to a U or L-shaped recovery — either economic destiny will be determined by the shape of fiscal policy and whether insolvent institutions are infact allowed to fail or continue indefinitely as “zombies”.  Unregulated derivatives markets must be brought in to the light and fully regulated in order to prevent credit default swaps and other leveraged contracts from contributing to widespread system disruptions.

This turning point has been marked by the downfall of the US as the financial capital of the world.  A slow unwinding process that in the decades to come will be much more apparent than it is now.  This is the unfortunate consequence of being the largest debt bearing nation in the world whose currency is quickly losing popularity as reserves for central bankers around the world.  The unraveling is going to degrade the quality of life for Americans and boost domestic inflation considerably.

If nothing can be done to restore confidence by regulating the shadow markets and unraveling the insolvent institutions, then this trying period shall last quite a while.  At this point I don’t feel the actions of the US government or the Federal Reserve have been constructive to that end.  That is why I feel the rally is largely unsustainable and right now we are in a frothy period where short positions in equities and long positions in foreign currencies may be appropriate to consider putting back on the table.

Disclosure: Short US equities, long foreign currencies

Much of the rally has been predicated on increased optimism because the recession may be slowing. Many recessions have double dip bottoms and most bull markets are not led by the same groups that led the last bull market.

In addition, the US still has a lot of problems with the deleveraging consumer, potentially insolvent banks and a financial system whose accounting has reverted back to off balance sheet trickery and mark to make believe models.

How can we believe the rally is real if it is within the context of one of the sharpest downturns the world has ever seen, where the fundamental macroeconomic picture has not improved and nor has there emerged a true cyclical leader for the next bull market?

For the past seven weeks there has been an impressive, rip roaring 30% bear market rally from the March lows.  There has been no fundamental reason or glimmer of hope that truly spells the end of this recession.  Instead what we have are bank earnings that no one in their right mind can trust with the amount of accounting trickery taking place.  Consumer credit card interest rates skyrocketing.  Record foreclosures in both residential and commercial real estate.  And a parade of uninspiring earnings and guidance from the S&P 500.

Room for gloom and doom

The market has been ignoring bearish news which  could be viewed as bullish, except it is also ignoring the fundamental macroeconomic picture.  Emerging markets in Eastern Europe and Asia are hard hit by the global economic crisis.  Some are on the brink of default with their sovereign debt, forcing them to seek loans from the IMF.  Others are rapidly devaluing their currencies.  Either  path demonstrates signs of extreme financial stress.

There is no end in sight to the problems with real estate, which led us in to this mess.  We have yet to see a meaningful bottom in housing and now commercial real estate is suffering.  GM is on the verge of bankruptcy with few alternatives and to top it off global GDP will likely shrink the first time in decades.

Froth at the top

On a technical basis the S&P 500 seems to be overextended.  It has been overbought too quickly for most of the momentum to be sustainable.  In the last week we’ve seen a lot of that momentum fall to the wayside.  While consolidation is normal, we can’t with any confidence declare this as more than a bear market rally to which an abrupt and painful end may be in sight.  The bank stress tests are expected to start being released to banks this Friday and to the public in early May.  The old adage “Sell in May” could be a very meaningful pronouncement for this Summer.

Keep your powder dry

I recommend using this rally as an opportunity to raise cash, sit on the sidelines and wait for a good buying opportunity for the long term.  Short term the best position is a short bias.  I don’t feel that being constructive after such a massive build up, especially when some of the larger gains have been on light volume, is warranted.  Possible support exists at 850, 830, 800 and 775.  At this point it is conceivable that we also retest the lows in the 660s over the Summer depending on how severe some of the interim problems become.

Recently there’s been some discussion about regulation and improving oversight of our global markets.  Of course bankers and would be capitalists scoff at the notion.  Why would we want to regulate a free market?

In what seems to be a massive legal loophole being exploited for the gains of insiders with privileged information at publically traded companies, the existence of the JP Morgan PrISM program provides compelling reasons to closely examine the way banks and brokers handle securities and favor their biggest clients at the expense of everyone else.

The creation of a legally rigged market alienates and burns most average market participants, whether they are traders or long term investors.  If insiders are allowed to freely trade their company’s stock with privileged information, where is the incentive for any other person to participate?

Anyone who would knowingly lie, cheat and steal in this manner undermines the very system that allowed them to accumulate wealth and operate a business.   These individuals deserve to be held accountable for their actions, especially now that the world knows how disruptive this level of fraud can be.   What we’ve seen with AIG, Citigroup, Bernie Madoff and the rest of the firms and individuals is nothing short of a cataclysmic blow to free market capitalism.  To restore some level of trust we need to see a lot more folks than just Mr. Madoff going to prison, not passing go and paying BACK the $200 (or however much bailout/bonus/fraud money they received).

Just how many banks have a PrISM-like insider trading system much like JP Morgan?  With cockroaches you know that there’s always more than one.  I feel this scenario plays out much in the same manner.  More banks will have whistleblowers reveal that they also have insider trading and other very unethical programs.

Just how many money managers try to avoid doing their homework and try to cheat the system by getting insider information?  How many will be investigated by the SEC and actually be arrested?  Will the SEC reinvigorate itself to return as the sheriff of Wall Street or will this administration create a new, larger and more overbearing regulatory apparatus?  More importantly, will the crooks go to jail?

Or will we keep the status quo?   A revolving door between the SEC and Wall Street where former officials are given cushy jobs as legal counselors or advisors.  This massive conflict of interest includes members of the Madoff family working for the SEC and Bernie himself being a paid advisor for several years, helping to shape policy for the agency that was supposed to watch out for people like him!

I say we close all the loopholes and start prosecuting the crooks post haste.  No one deserves another breath of fresh air or moment of freedom if they are directly responsible for lying, cheating and stealing our system in to near collapse.

According to CNBC, the White House has claimed Obama will give more details on the mortgage rescue plan in a speech on Wednesday.  This has provided a confidence boost and provided a bid to stocks.  Treasury bonds, however, continue to sell off in a significant way.

Yesterday at about 340pm, the US government, through Geithner’s treasury department, leaked a plan that will allegedly help distressed mortgage borrowers lower payments.  The plan boosted the mood, forcing end of day short covering, raising the S&P 500 back to a key resistance level around 835.

Today is the last trading day before a three day weekend.  We could certainly see an increase in volatility as a result.  Mr. Geithner’s department leak seems to have been strategically delivered to stave off another leg down.  Yesterday we were testing the 813 level of support, which looked to be giving up as the S&P traded as low as 810.  After 813, the last major support is 800 before we look at the November ‘08 lows in the face again.

Nonetheless, significant technical damage is being done.  The Dow Jones industrial average made a new multiyear low yesterday, the transports continue to sag and the only index with promise, the Nasdaq, seems to be finding less buyers lately.

Overnight the tone of futures markets has been pretty negative, pushing the major indexes to levels that could retest the trend line support at open if we stay this low.  The S&P has been flirting with 820, a very key level that if significantly violated to the downside, 813 and 800 remain as important support levels.  After 800, we have a vacuum that could reach the November lows.  Of course a violation of 820 on the downside will be seen as a breakdown of the modest uptrend and that could catalyse a wave of selling.

One discouraging sign is since the small rally in early January, every time the S&P 500 has bumped the 50 day moving average we’ve seen a wave of selling.   Market participants are not commiting to long term positions, but range / trend trading short term and this action is increasing volatility.