The Market “Reprieve” Goes “Full Risk-On”

Last Thursday I wrote the following in Currency Currents:

“September is well known for being the worst month for US equity market performance. That may be reason enough to expect the opposite in the early going. After all, the catalysts for market weakness — mainly concern for emerging markets and rising interest rates — are probably overdone in the near-term.

“I expect a reprieve from general selling pressure in global equity markets and other risk assets over the next few weeks. In that environment, the US dollar probably will be pressured lower. Once the US dollar is again looked at as a dog, it should be about time for it to head higher as many have been quick to forecast in recent months.”

I was reading a Bloomberg article this morning and read an analyst’s reaction to recent economic data and market action. Effectively he said:

“Markets are full risk-on mode.”

I suppose we are. Three things to consider:

1) The view in China is a major impetus — better-than-expected export and industrial production numbers yesterday and today, respectively, are helping to drive the rally in Chinese and emerging market equities.

2) Russia apparently has a respectable proposal on the table that would see Syria give up its chemical weapons and bring an end to the face-off that’s unnerving market players. I can’t yet say with any confidence that Russia engineered this Syria fiasco, but I can say they seem to be coming away with increased global influence. Russia has been mocking the US by pointing out the insanity and inanity of America’s social policy disputes. And now Russia is seen to be driving the dimplomatic efforts in the Middle East.

3) The Fed will always be in the picture. And it seems Friday’s Nonfarm Payrolls report is being used as a rationale for why risk is on this week. It’s not surprising.

The question, of course, is this: how long will risk appetite remain the impetus du jour?

As I said, I thought this reprieve rally might last a few weeks. But a look at several recently beaten down assets shows that the market has bounced back sharply and quickly. It will take persistent optimism to generate additional significant gains going forward.

Perhaps the September bears will emerge next week around triple-witching. But they have to get through the September 17th -18th FOMC meeting first.

S&P 500 chart setup — finishing a B-wave corrective bounce?

The S&P 500 is testing a key Fibonacci retracement number that could mean the end of this corrective bounce is near.