Everywhere you look, another hedgie is throwing in the towel — pronouncing the market overbought and susceptible to a big drop as a result of Fed normalizing.

I agree that rate normalization would be devastating for stocks.  But, folks, an additional 1/4% in Fed Funds is far from normal.  Call me when the 10-year gets back over 6%.  In the meantime, all the gnashing of teeth should just stop — at least as far as rates are concerned.

Investors should, on the other hand, be concerned about the veracity of information pouring out of Washington, the quality (and lack of) earnings growth, and the ability of central bankers to keep all the plates spinning a little longer.

The apparent equilibrium is tenuous at best, and largely relies on the inability or unwillingness of the few remaining active, fundamental investors to recognize the tricks and gimmicks being used to keep equities on the rise.

continued for members...

Today, that trickery includes another VIX “breakdown”… …and USDJPY’s latest “breakout.”EURUSD is inching ever closer to 1.1470, with another breakout overnight.This leaves SPX likely to tag our 2400-2403 target.With EURUSD and DX soon to be in need of reversals, Yellen can be expected to talk up the prospect of rate hikes.  But, she has to do so without killing off the enthusiasm surrounding free, cheap money for all.

If SPX suddenly collapses below its white channel midline at 2422ish, it’ll likely be because someone says something alarming enough to scare the herd into believing that actual normalization is really, truly on the way.

Along those lines, here’s an updated chart on CL with last year’s July price range superimposed in the current time frame.  It’s little wonder that TPTB slowed its ascent, as the initial rapid rise earlier this month would have sent CPI to an inconveniently elevated level. Taking a 30-min break, will be back around 10:30AM…

UPDATE:  1:39 PM

We got a nice initial selloff in SPX to 2412.79 — about 19 points from yesterday’s high.  From there, VIX and CL worked to get it back above neckline where it might or might not remain.  At this point, I’d go ahead and cover as it has risen above the short-term MAs.  More importantly, EURUSD has finally reached our 1.1470 target, meaning the USD should pick up strength here. I suspect it’ll run up and tag the SMA5 200 and reverse, in which case we’d be right back to short.  But, stranger things have happened.  And, if the dollar reverses strongly enough, it could sent a strong bullish message.

With respect to EURUSD, I’d be looking to short here — downside target tbd.UPDATE:  2:05 PM

If it’s going to reverse, this is the spot.  I’d reshort here with tight stops.UPDATE:  3:12 PM

SPX broke down below the SMA5 200 and a little TL off the lows…and, then, VIX started plunging.  In other words, we’re likely to get a break out here.  For those not willing to hold short overnight, this is your exit point.  I think there’s at least a 50:50 chance at additional downside tomorrow.  But, as always, only hold short if you can hedge or deal with gap risk.  With Yellen speaking tomorrow, it would be somewhat unusual not to get a ramp overnight. UPDATE:  3:55 PM

As mentioned above, the situation is fraught with danger.  While a drop to 2400-2403 would make a great deal of sense, VIX has plenty of room to plunge and we should see USD rally tomorrow (if Yellen can figure out a good enough story…)