Combined catalysts that constantly deflect both rallies and declines are starting to wane; although there's no argument that these battle line skirmishes 'can' persist for awhile, until heavy turbulence returns. What we had on Thursday actually broke only the 100-day Moving Average, with an excessive focus on Trump and protectionism.

That means that if the DJIA drops another 500 points it might dissuade the President from implementing anything without negotiation (Art of the Deal after all); and you'd get a sharp rebound next week. However as the overall (3rd day down of 1000 points now for the Dow) decline has a genesis 'other than' the President's handy excuse they can pile onto; the ensuing rebound (if things go that way) would be another selling spot as well. If the tariffs go ahead and get employed; well we'll plunge lower as the market would eventually do anyway. It's just a question of how fast.

At no time this year has there been much upside potential as at all times there has been lots of risk.  In any event the real kicker today was of course New York Fed President Bill Dudley talking of 4 rate hikes. Of course that was completely ignored once the President spoke of tariffs. 

So far the hits have been modest air-pockets (yes the 10% peak-trough S&P February projected break was moderate; and the rebound within a defined proportional 'automatic rally' outlined). The point is that whether or not corrective actions are within context of the forecast including the Spring rally effort (successful or not); turbulence will likely strike with a vengeance as time goes on. And both the early February projected hit, and this week's 1000 point Dow decline so far; are not huge percentage drops; and tend to get rescued because of fund liquidity concerns that I talked about last night.

Going forward after a couple days, it could enter a period of 'clear air' turbulence, which means radar won't show much ahead (or if so most pundits will ignore signs that are already warning risks are the primary concern now; rather than upside opportunity), and then again you get a sudden downdraft which will be blamed on rates or any other backdrop they feel like citing. And that's whether or not tariffs are imposed.

Powell's Last Stand?

The Fed's ability to enforce regulations is not compromised by views we hear from some who view Chairman Powell as surrounded by hostiles at the Little Big Horn; and likely to be pummeled no matter the Fed actions taken to do their job. Sure they waited too long to get off so-called ultra-low emergency rate levels; and they have limited maneuvering room (just as Kaplan recently warned) should we get a premature slowdown.  

Those are really underlying issues in an extended market, where Street 'structural' impediments to decline are starting to run-out-of-steam. Just as a for-instance, in the forecast roiling of the month just past, 'buyback' efforts (active or announced) were unable to offset general liquidations.

Buybacks have been one of the catalysts to hold huge stocks up (that's reason also why technology represents almost a quarter of entire values of the market; while Apple alone represents 20% capitalization in S&P incidentally). Another catalyst has been the use of leverage; and we are not primarily referring to 'retail margin', but institutional heavy leverage in a sense to 'make their own game'. (See last night's write-up on this.)

I believe that was employed to stem-the-tide last month; and think proof of my contention was this week's inability to have follow-thru sustained after the short-squeeze (a week ago into the start of this week) above a key S&P resistance level (which became support and now resistance as we broke down below it in the prior two sessions). It made 2730-2750 very key as a demarcation zone (it was 2750 basis March S&P; but as time and price evolved the standard-deviation mean adjusted lower too).

Bottom line:  a week ago warned of failure to follow-thru a Friday rally (a timing short-squeeze to catch many off-guard); and for 3 days now I have addressed 'crash conditions' out there again; noting deterioration. Of course at this point it would take a 100 handle leap to offset damage; and again one doesn't want to chase the downside into weakness (no need to; and no sensible investment value alternative either, as yet).

And incidentally the chart below; through end-February is proof enough that the projected February break; the questionable but tradeable rally; as well as this week's ensuing decline given lack of early-week follow-through, were well structured and evacuated, before the tariff issue.  

In sum:  on this topic I believed (still do) that funds were at-risk of lots more than a 10% decline and the leveraged ones knew they had lots of trouble brewing; so they extended themselves 'even more' by throwing money at the market to get it up off that congestion zone. I argued that they merely 'bought time' and that the rallies should be sold.