Powell is climbing out from a hole tomorrow!

After 90 points mini crash late last week, the S&P 500 has just been slowly drifting higher. There's negative divergence on many technical indicators. And VIX call options are between 5 and 8 times the price of the equivalent VIX puts. I suspect we are setting up for a quick flush lower. What is the trigger? Maybe an event tomorrow! Yes, all the eyes are watching and ears are listening right now: the Fed Chair, Powell, will be climbing out from a hole to speak around 10 AM tomorrow, at the Jackson Hole annual meeting. Does that mean anyone is expecting him to say something interesting? Not at all!   Actually no one is expecting him to say anything new but if he is perceived to be speaking something a little bit out of whack, then watch below. For some reason, Powell is notoriously easy to spook the market by saying something misunderstood by investors. There is a chance he will do so again tomorrow. You see, the market has priced in a perfect world with perfect Fed support by now. It is not important what Powell actually says tomorrow. All it matters is what the market thinks he is saying. Anything apart from the priced-in perfection may trigger a flash crash. 

Now forget about what will happen tomorrow. Let's do an honest self assessment where we are in terms of the market cycle. Below is the Market Fear Curve, which vividly describes the investors sentiment and psych at each stage of the market. Do you think we are on the right side at the moment? Anyone with a normal mind won't believe so. But people may differ where we will land ourselves on the right panel. Personally I think we are at the top of the bull market, or at least very close to the top. We see a lot of excitement and overconfidence these days. That's why there is virtually no any fear that may last for a few days, let alone a few weeks or longer. Each tiny bit of dip will be eagerly bought up, followed by new highs. How exciting it is! And those dip buyers have been right for months. Nothing to fear about, as we have witnessed right now. But as the diagram below has pointed out, this is actually the time with Greatest risk of loss!