For, oh, so long, U.S. markets were masters of the universe. They went where they wanted to go independent of all other markets. That's been true for decades now. Other than the occasional blip here or there where some world event would upset that relationship for a short period of time, the U.S. was king of the hill. That equation is changing though.

The Great Recession did a lot of things to the world, but most importantly, it brought on a cure that is simply worse than the ill in the form of quantitative easing. The U.S. led the way in saying that it was the wave of the future — the genie that could grant us endless wishes, and the world has listened. Now that the genie is out of the bottle and true voodoo economics has been embraced by the world, the U.S. finds itself in a peculiar place in time — a place where U.S. equity markets no longer are mostly independent of world equity markets, but so much more dependent. In fact, at this particular juncture, we are almost totally dependent on the whims of Asian and European markets for direction — no longer the leader but instead the follower.

If you take that at face value, then one logical deduction is that one needs to look "over there" to decide what is going to happen "over here" and if one does, it doesn't bode well near term, for "over there" has already mostly made their run while "over here" has gone nowhere.

So, what will U.S. equity markets do when world markets begin to correct/consolidate? What will be the catalyst to keep domestic stocks afloat, never mind rallying higher? The way I see it, for the past half year or so, the U.S. markets have been held higher because the world soared higher and nothing more. That certainly has been the case this year. U.S. equities have treaded water since the beginning of 2015, while the world did laps around them. Now the world is showing signs of consolidation — both in Europe and probably in Asia as well.

A comparison chart of the three markets using German EWG, -0.62% and Shanghai ASHR, +1.14% ETF proxies as compared to the S&P 500 shows the tail that's now wagging what once was the big dog. Note this is even without currency adjustments.

Since the beginning of this year, the difference in gains between these markets are hugely different, and this doesn't even take into account the huge gains registered in China prior to this year.

The point is, of course, that U.S. equity markets have been able to trade more or less sideways because the rest of the world is on another central-bank binge. We taught them well. Everyone wants their own domestic genie, and the wishes they wish for are not always what the U.S. would want. This brand of voodoo economics really is magic — something for nothing — no downside we are told.

Leaving aside the entire argument of whether quantitative easing brings more ill than good over the long run, activism on the part of central bankers around the world has definitely changed the equation. With the world on another huge credit-binge orgy, it's hard to see a crash unless investors decide to no longer worship at the new economics alter.

The more likely scenario — for now — is that we simply no longer have full control of the roller coaster we are riding and are much more dependent on the whims of other central bankers. Short term, that is about ready to felt as pressure on U.S. equities, most likely as China, Hong Kong and Europe all move to a consolidation phase for their recent gains, leaving U.S. equities without a catalyst to tread water, let alone move higher.

In Europe, the two dominant markets are France and Germany. Germany, in particular, is showing the tell-tale signs of consolidation, as seen here.

A failed attempt to regenerate higher should be interpreted as "sideways at best" on this timeframe, which is what a consolidation is all about. In France, the same pattern is in place and the coming bullish retest-and-regenerate attempt should define the initial consolidation range, as there is a high probability of a bounce again from there. If it doesn't, then that is an entirely different story.

Moving to Asia, Hong Kong is showing hints of the coming consolidation

Shanghai, however,i has yet to show the initial signs other than the small warning shot spike down on volume last Friday

The good news is that the initial consolidation phase looks as if it will be relatively contained without an extended retrace. If true, then the U.S. markets won't be unduly punished, but if the consolidation takes on a larger retrace, then U.S. markets could feel greater pain for they have clustered swing points gathering at lower price points.

As was said in last week's missive, this is the first time in over three years that we have altered our investor's portfolio on our site — reducing their exposure to domestic equities —— as the rewards no longer outweigh the risks. Financial markets are, by their very nature, unstable. Recognize that there are huge incentives for governments and central banks alike to have them appear calm and on a steady course as they do instill confidence, as well as fear. That stability is a facade, and confidence can turn to fear quicker than a thunderstorm can spawn a tornado.

With world markets setting up for consolidation, the effects on U.S. equities is likely to be unfavorable, though probably contained for now. The real issue longer term is how do U.S. markets adjust to no longer being top dog, and does that imply increasing volatility as a result of more intervention in even less-stable world markets? Time will tell.