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After the QE3 'Sugar Cube,' SPX Declines

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Also, sectors decouple: Witness the Dow Jones Transportation Average and the Dow Jones Industrial Average.

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Reminding us of the current equity market is an anecdote about the Sport of Kings that took place in London:

An American race horse owner, while parading his entry in the paddock just before the event, fed the horse what appeared to be a white tablet. Noticed and challenged by an English track official, Lord Marlboro, the American was informed that his horse would have to be disqualified. Protesting vehemently that he only gave the horse a sugar cube, the owner popped one into his mouth and offered Lord Marlboro a cube as proof. The English official tasted and swallowed the cube. He agreed with the owner that it was a harmless sugar cube and waived the disqualification. Just before the race horse was to enter the gate, the American signaled his jockey, instructing him to keep his horse clear of trouble near the start and try for the lead early since his horse was sure to win. "In fact," he told the jockey, "Only two have a chance to beat our horse." "What two?" asked the jockey? The American owner replied..."Me and Lord Marlboro!"
-- Anonymous

I recalled the "Me and Lord Marlboro" quip over the weekend as I prepared to journey to Keeneland Race Track this week to speak at a Raymond James function. For those that do not know about Keeneland, it is a thoroughbred horse racing facility and sales complex located in Lexington, Kentucky. It is also known for its reference library on the sport, which contains more than 10,000 volumes, an extensive videocassette collection, and a substantial assemblage of photo negatives and newspaper clippings about horse racing.

This "Me and Lord Marlboro" reference is not an unimportant observation since the stock market was fed a "sugar cube" a few weeks ago by the Federal Reserve in the form of QEternity! That "sugar cube" fostered a vault in the equity markets that left all of the sectors I follow, as well as the NYSE McClellan Oscillator, well overbought in the short-term. As stated at the time, there are two ways such an overbought condition can be corrected.

First, the equity markets can trade sideways, in a tight trading range, while the overbought condition is corrected. Or secondly, markets can pull back to a support zone to alleviate the overbought situation. In the current case that would be 1400 – 1422 for the S&P 500 (INDEXSP:.INX).
No positions in stocks mentioned.
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