Artificially Engineered

Marketwatch ran a story on Marc Faber and his call for an 1987-style crash. Marc ‘wolf’ Faber still thinks an 1987-style crash is coming slightly chides him for crying wolf, and ironically mentions portfolio insurance. Oh, and it's different this time because everyone is protected from a crash. Yes, of course.

Understand one thing: VIX calls do not hold up the market.

But I would caution two additional things: the risks inherent to leveraged ETFs, and the double-edged sword of too many market participants expecting a crash.

Just as forced selling in ETFs can exacerbate downdrafts, it can also work the other way to continue the uptrend. In other words, forced buying. Add that to forced buying from shorts running to cover, and it's important to be prepared for both outcomes, i.e., a crash or a crack up boom.

Every once in a while there is a chart that spells out the fallacy of the 5-year rally in the most explicit terms. This one is from Zero Hedge.

Total market capitalization/Total Federal Reserve Assets shows this is an artificially engineered rally, but a rally that can keep going until it suddenly can't.

1688.38 is the stop for any long bets this morning. 1676.03 remains the more important stop for the way I'm currently viewing the market structure. I continue to see a path toward higher highs as long as the latter holds.