Flows into riskier assets have continued as small caps, mid caps, and tech have outperformed so far in September. Heading into yesterday's trade (Thursday, September 17), eight of the previous nine sessions saw gains, another sign of the seemingly insatiable appetite for equities. How long will this behavior continue? Most likely until either inflation kicks in to spook investors or until the fed begins to drain off the excess liquidity they have pumped into the monetary system to avoid a deeper economic contraction.

We believe that the excess liquidity is producing a market rally along the same lines as a five year old that has had too much candy, but this 'sugar high' has the potential to last possibly through the end of the year. In an era where 'less bad' economic data is something that excites the market, it is wise to remain prudent with risk management methodologies while continuing to go with the current trend, which is pointing higher.

There are signs, however, that there may be near term trouble brewing. One of the areas that I like to watch is the behavior of semiconductors vs. the Nasdaq 100. Semiconductors are a good proxy for tech in general because semiconductors are in just about everything throughout the tech industry. There is an old saying "as semiconductors go, so goes technology".

In the chart below, I have plotted a relative strength line between semiconductors (the SMH ETF) and the Nasdaq 100. When the black line is rising, semiconductors are outperforming the Nasdaq 100. When the line is falling, semiconductors are underperforming the Nasdaq 100. I have also plotted the Nasdaq 100 index itself, which is the red dashed line.

Notice how the Nasdaq 100 (red dashed line) has managed to push out to new 2009 highs, while semiconductors have been lagging (the falling black line). That says that a short term correction may be due, so active managers and traders should continue to manage their stop loss levels and see if a market correction will finally unfold. If it does, risk management will prevent steeper losses. If not, continue to ride the trend higher.