The last domino

A FEAR OF DROPPING - I am so exhausted watching US equities bounce with ease, each and every single time it looks as though they should undergo a more significant corrective decline. While many of you might argue that we are in an uptrend and the trend is your friend, at current levels, and with the market moving as it has over the past several years, there is every bit of technical justification to expect the carving of some form of a meaningful top. I am not complaining for lack of performance or opportunity, as the sell on rallies approach has proven to be most rewarding for my portfolio in 2014. But I am disturbed with the price action on the basis that it almost feels unnatural and artificial. Fundamentally, this could easily be assigned to the fact that the market has been propped on the back of Federal Reserve incentive, and until the Fed really starts to normalize policy, we shouldn't expect anything to change. Many have dismissed the Fed's role in equity market performance, attributing the gains to a recovering economy and attractive valuations. However, I have a hard time adopting this rationale when money is so cheap and the alternatives for investment are few and far between in a historically low interest rate environment.

THE LAST DOMINO - Still, even with stocks back to a stone's throw away from fresh record highs, I foolishly retain my sell on rallies approach, and believe we will ultimately see the carving of this meaningful top that has yet to materialize. With volatility drying up in all other markets, and with currencies going nowhere of late, everything comes down to the US equity market. My best argument for a top in US equities is that we have already seen other risk correlated markets start to price in the reversal of Fed policy and the changing landscape in monetary policy, and US equities are simply the last domino to fall before everything can start to move again. Over the past several years, it has become increasingly difficult to find attractive yield, and cash has flown to all corners of the globe in search of any yield it can find. But all of these other markets have already seen an end to this honeymoon period, and the equity markets are the last man standing. Equity markets should not be immune, and just like other risk correlated assets that have finally come under pressure, so to should US equities. At the moment, I am slightly out of the money with my latest S&P short trade, and we will need to see a bearish reversal day and break back below Tuesday's low to help confirm my bias and accelerate declines. Let's see how it all plays out. As always, keep an eye on USD/JPY and EUR/CHF and look to see if there is any renewed pressure on these markets that would confirm bearish equity performance.