"Things never go wrong at the moment you expect them to. When you're completely relaxed, oblivious to any potential dangers, that's when bad things happen."
-- C.K. Kelly Martin
The old adage "don't fight the Fed" has served investors very well for a very long time, but there are worries bubbling up that maybe the central banks won't be accommodative forever.
The indices are still holding on to key support level but suffered some selling yesterday on reports that the European Central Bank may start to taper off its bond buying before the program is due to end in March. Also, there have been hawkish comments from Fed members Mester, Lacker and Evans.
This hawkishness has caused the dollar to rally and precious metals and bonds to fall, but hasn't yet had a major impact on equities. The bears are still struggling to shake the faith that investors have in the wisdom of the central bankers.
Many market participants are looking ahead to the September jobs report which is due out on Friday. That is news is very likely to impact the odds of a rate hike before the end of the year. At present the chances of a hike at the December meeting are around 60%.
The bears have long anticipated a day of reckoning when the financial engineering of the central banks would start to unwind and cause great chaos for the markets. It is hard to dispute the likelihood of such a scenario, but the bears have been dead wrong about the timing. They have incorrectly anticipated this disaster for so long that it is difficult to take it very seriously.
The key to be ready for this pessimistic possibility is to stay focused on price action. A major change in market character is going to be the best possible clue that the bears may finally have it right. At this juncture, there still is nothing particular bad about the price action. In fact, as I've noted many times recently, individual stock picking has been quite robust. We had some good examples yesterday in names like Acacia Communications (ACIA) , TPI Composites (TPIC) , Weibo (WB) and Momo (MOMO) .
The indices aren't acting particularly well, but they are holding key support and the underlying speculative action does not reflect a great level of concern. That obviously can change quite fast, but at this point the action is nothing different than we have seen many times before. In fact, the pattern is that we are saved just when it starts to look like the problems may start to build.
We have another very flat open setting up and there hasn't been as much dip buying lately. As long as we hold support at the September lows, things are ok technically, but a retest would be very dangerous.