Circling the wagons is essentially what happened on Tuesday. First the very weak try at an early rally showed Monday to be a ‘one-day-wonder’ (that was a thought we had yesterday); not a big reversal of increasing sentiment ‘risk-off’ returning to the fore. An early sell-off might get blamed on the EU/Ireland/Apple confrontation (which we discussed in detail yesterday before the actual release) while the ensuing purge might get blamed on the Bloomberg interview with Fed Vice Chairman Stanley Fischer; although the late comeback is more pertinent.

How so; well, Friday was an ‘outside-down-day’ technically speaking. And that’s often a sign of a reversal, especially at extended levels (higher high, lower low, and lower close for those unfamiliar with the pattern that’s well-watched by lots of traders who take note when it occurs). The late low today (Tuesday) was just a smidgen above the intraday Friday low; and I suspect trading desks were just a bit nervous about it breaking; so they brought it back somewhat to the close.

That was a fairly classic ‘save’, but late in the session and more associated with intraday squaring than much else. If they subsequently (with these light-volume semi-holiday crowds in a week up to Labor Day) break the Friday low, you could get a bit of a vacuum since there is not much liquidity (or interest) around in a summer-doldrum week like this.

More on the Fed (and hike odds) below; but the market is vulnerable regardless now. At the moment there’s little volatility in the market, but that’s likely to shift in short-order, and could do so swiftly, as hinted at by last Friday’s action. We don’t think this is a market to liquidate core investments (and have not believed so at any time); while an investor generally should be comfortable holding whatever is retained through a decline that could be from 10% to as deep as 30-50%. With so little upside potential; even if the market goes higher should the Fed not hike, that’s a warning of a petrified (inaction) Fed, and the hook might be it drops after that ‘anyway’. We’d definitely err on the side of caution here. It’s a long saga for sure, but it is what it is; and those that are fully invested shouldn’t breathe easy as they haven’t seen much progress of-late; plus are exposed to serious risk.