Risk: The Hero Child Saving Investors from Themselves

A sudden snapback rally has people excited again... yet caution is required.

Equity Storm Watch Is YELLOW on the S&P 500 and RED on the Russell 2000

Dear Fellow Expat: 

Typically, our letter would start with a simple, upfront note on the current state of affairs in a simple image. But I want to show you what happened yesterday. We had a 1,500-point reversal on… well… let’s try… to… nail… this… down.

The telltale signs of a market in trouble appear when day-to-day price action becomes seemingly impossible to explain. Yesterday, after CPI came in a little hot, markets began to sell off at the open—no surprise for anyone watching forex markets. 

The yen was again testing the highs hit in early August when volatility shook the carry trade world after the Bank of Japan's surprise rate hike. Since then, capital has flowed out of U.S. equities, back to Japan, and into bonds and gold. 

The pattern of lower highs and lower lows driving specific parts of the market higher is clear—it's all very structural and makes perfect sense. But then… we end up here.

With a fourth-straig…