Be On Guard For The Unexpected

"Be on guard for the unexpected" was the final implication of The Socionomics Of September Vogue 2013. It has already proved true with the Fed's infamous No Taper decision. There could be further unexpected events.

For one, expect the Taper itself to be unexpected. When you have the two of the world's largest asset managers (over $7 trillion AUM) begging, demanding & screaming for the Fed to taper, it's a good bet it will likely come out of the blue.

Or it may never come at all.

With near record bullish sentiment, many traders and investors seem to be betting that a 1995 redux will occur: a breakout with a multi-year rally. Of course this is a possibility, especially with the excess liquidity chart from JP Morgan posted here recently. But perhaps they should consider the unexpected. That the markets could fall in spite of continued (or even greater) stimulus.

The simple problem is there is simply no money velocity.

But there is divergence. The divergence of 52 week highs participating in the latest leg of this rally is stunning. 463 at the beginning, 228 yesterday. There were 671 in May 2010.

The percentage of the S&P above the 50dma is also diverging.

Total US Ticks (the total number of all US stocks rising at any given moment) is diverging.

What if the "market" has been marking time while waiting for the Dow to reach its multi-year upper trendline?

To me, this is not a backdrop that suggests a market ready to break out on a multi-year bull run. It suggests caution.

However, there are so many Fib extension targets from 1772-1778 that if the market chooses to disregard them, it could probably run to 1800 or perhaps 1825.

The structure of the rally since 10/23 makes me a doubter though. It's too perfect, too straight. There is precious little expansion and contraction, too little inhaling and exhaling, just one long gasp.

In other words, not natural.

In reading several expectations of today's Fed meeting, perhaps Citi said it best:

"Investors go into FOMC fearing little." Bingo.