Blissful denial of perpetuated anxieties  was more soberly assessed by Japan's BoJ early Wednesday; then almost entirely obfuscated by responses of our Chair of the Federal Reserve in the afternoon. Markets loved this; ignored confusing stances that contradict the Fed's own (yes, both Yellen & Fischer) recent hints of revisionist policies; which (along with 3 dissenters) leaves the Fed contradicting themselves.
 

Whether or not investors (or more accurately institutions) will 'buy into' this song of slow growth 'as if' it were occurring and not facilitated by the Fed inhibiting business activity, is another story. Our suspicion is that it's a temporary phenomena (maybe a one-day lockout even); though that will be pending the activity of hours just ahead.

The notion of a 'neutral rate' based on the Fed's rate of accommodation is arcane, as well as subjective the way they interpret matters. The market rallied as everyone figured, 'if' they didn't move; with only one selling wave that never got traction. Most presume that although the Fed telegraphs a probable December rate hike, for now it's 'easy money' and stocks go higher; with the S&P joining the Nasdaq's climb.
 

So now Volatility is way down; the market zooms back up; and we are not accepting the newfound comfort many have about being complacent or flat-out bullish. Many factors can collide and inhibit bears perhaps; but also inhibit bulls. Including politics. (So yes, polls after next Monday's debates will be watched by traders beyond usual; because of the perception that one candidate favors multinationals more the small business growth in the United States.)

The markets need to focus less on every word out of a Fed official; but recognition I have pointed-out for months, that the policies have become counterproductive. The Bank of Japan came closer to acknowledging that today; while the Fed overlooked, or minimized, even the one question Yellen got querying about 'global' influences.
 

I think the Bond market is anticipating an inflection (if it's not already behind), that's a game-changer. It is that aspect that primarily underlies our overall perspective as it links between the credit and equity markets (to wit the change is bond-unfriendly). If the environment has or is changing; then the 'reprieve' we've yet-again is perhaps short-lived. Interest rates rising should result in shorter durations; rising volatility; or a justification for becoming increasingly defensive.

Bottom line: when the market broke from the area of our present (partial) short, it left a bit of a technical gap. The upside does have potential to reach or breach that; but it's not essential and it should (at best) put the kibosh on this rebound everyone expected 'if' (and that was the majority view) the Fed held-back on any change yet.

The relationship between the Fed's balance sheet (grew primarily based on QE as often noted); which levitated the S&P concurrently. When QE abated, so did upside behavior of the S&P. Mostly this supports the idea that the upside extension (for at least the past year if not more) has been artificial or essentially entirely central bank based, and not the product of top or bottom line corporate profitability.

That's a main reason multiples were allowed to get high, although not dramatically; while revenue and U.S. GDP growth simply are not there, and are not projected to be there, either by a rationalizing Fed (who lowered targets today) or the CBO and others who warned of this behavior. I think it's a reason we've been shorting rallies all year basically. Because of an approach of taking partial profits and then retaining part; it has worked quite well (if stressful at times); periodically even dramatically so (year end and start; June swoon; and even the huge drop for partial gains recently, prior to this reprieve). This move will exhaust and traders will focus on a December hike. It's overly simplistic (and not all that's involved, but probably what transpires).