Back to Boring

The SPX gained 21 points last week, going from 6849 to 6870, while trading in a 96 point range for the week.  That's less than 1.5% for a week of trading.  By comparison, the SPX's range on November 20, the day after NVDA earnings was 236 points, which is 3.5% for one day.  With volatility going down so fast, the VIX is getting crushed.  It closed at 26.42 on Nov. 20.  On Dec. 5, it closed at 15.41.  Whenever the VIX is going down this fast, the opportunities go away and its usually just best to sit and wait.   

You finally got the dead cat bounce in bitcoin, all the way to 94K last week, but the bounce has been fading .  Bitcoin continues to trade heavy, and it being one of the best indicators of risk appetite, is a bearish factor.  BofA client flows show retail being net sellers for the past 4 weeks, a big change from their behavior during past dips, and also the past 52 weeks, where they have been the biggest net buyers.  

Hedge funds continue to show that they don't believe in this market, as they quickly went back to selling stocks after being heavy buyers during the weakness in November.  CTAs and vol target funds sharply reduced equity exposure in November, and have only slightly bought back some of what they sold.  DBMF, the biggest trend following ETF, shows a much smaller S&P 500 position now than what it was during June through October.  Those systematic funds slowly adding back long exposure is supportive for stocks in the short term.

Big picture, retail investors are very heavily allocated to stocks.  They've been buying aggressively since mid 2024. Recent activity seems to indicate that they are close to saturation.  Their stock allocation is the highest since 2021.  There is a lot of downside when this bull market ends.  Its just a matter of how long the topping process takes.  Best guess is that it started in late October, and the process will last for 5 to 6 months.  Bitcoin seems to be acting like a canary in the coalmine for the stock market.

There are mixed signals out there.  Sold the remaining longs last week, and now on the sidelines.  I don't see much of an edge at current levels.  The November pullback shook out a decent amount of weak hands, with put volumes going up and retail investors selling. That shake out could be enough to sustain a rally into the year end.  On the other hand, bitcoin is trading very weak relative to the SPX, and retail investors seem to be low on ammo, with many retail favorite stocks much closer to their November lows than their October highs.  

The most likely scenario is that we get a grind higher to the end of the year, making a marginal new all time high (SPX 6950-7000).  Then I would expect a selloff in January from a mix of delayed capital gains related selling, and a lack of bullish catalysts.  If the Supreme Court doesn't make a decision on Trump tariffs by year end, that would make it trickier to short in January, as that is probably the biggest positive catalyst left for this market.  But I would expect the Supreme Court to make their decision this month, because delaying it just creates a bigger headache unwinding and refunding the tariffs.  

FOMC is the big event this week, but also have AVGO and ORCL earnings which will be a good barometer for risk appetite in AI related names.  A hawkish 25 bps cut is mostly priced in.  I expect Powell to do what he usually does, which is talk about data dependency, be mealy mouth and non-committal.  It is absurd to talk about a hawkish rate cut.  Its like jumbo shrimp.  Forward guidance is a joke.  I expect the market to see through any hawkish tone, realizing that they got another 25 bps cut, and steepen the yield curve and probably rally stocks.  Not a high conviction view, however.

It is interesting to see 10 year yields go up last week even though you had rumors that Kevin Hassett is likely the next Fed chair, and you had weak jobs data (ADP, Challenger).  It appears the bond market is seeing through the weakness and expecting a rebound in the economy in coming months.  Also, overseas yields on the long end in Europe and Asia is putting some pressure on long bonds in the US.  All else being equal, higher yields is bad for stocks.  But that may be offset by the coming OBBA Trump stimmies in the first half of 2026.  Overall, not much to do here.  Watching and waiting. 

Retail Saving the World

Retail investor opinions on the stock market have changed dramatically over the past 20 years.  In the early years of the bull market that started in 2009, most of the population didn't want anything to do with stocks.  Daytrading was dead.  Only the hardcore traders and investors were around.  Then as the market kept rising, they slowly crawled back into the market feeling FOMO starting around 2017.  And it went into overdrive after the Covid money spew and lockdowns gave retail investors the time and ammo to go wild in the stock market.  The rest is history.  

Its been a retail driven market since 2020.  They have only gained in importance as they continue to allocate more of their assets into stocks, and out of bonds and cash.  Retail investors will determine what happens to the stock market in the next 1-2 years.  Hedge funds are no longer the market movers.  The baton has been passed to retail.  

In the early part of the bull market in the 2010s, it was corporate stock buybacks that were providing the endless bid for the SPX.  That trend reached a peak in 2024, and has come down as more corporate cash flows go towards AI capex and less towards buybacks.  Ironically, the popping of the AI bubble and a drastic reduction in AI capex could result in a strong rebound in stock buybacks, which would soften the blow of the AI bubble popping.   

Over the past 12 months, private clients have been buying stocks, while institutions and hedge funds have been selling. 

But on November opex week, from November 17 to 21, retail investors broke from their trend of buying the dip and sold into the weakness.  Looking at how retail favorite stocks and bitcoin massively underperformed in November, it looks like retail investors are running low on dry powder to buy more stocks.  In a turn of the tables, it was hedge funds and institutions buying the dip, as retail sold into the hole.  

Foreign investors have been a big source of the retail buying demand for US stocks.  Looking at the below chart, foreign investors have had a knack for buying heavily before bear markets.  See 2000, 2007, and 2021.  They have bought huge over the past 12 months, buying into the US exceptionalism story.  Not a good sign for the future of this bull market.  

History doesn't repeat, but it rhymes.  2025 is rhyming with 2000.  With 2021.  Stock buybacks are decreasing, while stock prices are higher as hyperscalers reduce buybacks to spend on AI.  The corporate buyback bid is weaker than earlier in this bull market.  

The bull market is now dependent on continued retail investor flows into stocks even as they hold all-time high asset allocations in US equities.  Retail investor behavior this year is one of FOMO + saturation.  Those who want to buy into US stocks have mostly done so.  And they have gone in heavy, leaving them with little dry powder.  The Reddit crowd brags about having diamond hands.  But the big down move in bitcoin, along with recent ETF outflows show that's all talk.  As most traders know, the bigger your position, the weaker your hand. 

Retail investors are holding large asset allocations in equities/crypto with limited dry powder to buy more.  This provides a simple game plan in the coming months.  Short retail favorite stocks.  In the large cap space, here is a look at what retail investors have bought the most over the past 12 months:

 

As expected, NVDA and TSLA lead the pack in cumulative retail purchases over the past 12 months.  Those are 2 good stocks to short in 2026.  Of course, outside of the Mag7, there are plenty of other retail favorites out there that will have much more beta to the market.  Like PLTR, MSTR, BMNR, IONQ, RGTI, OKLO, etc.  Ape Wisdom is a good site which shows the trending stocks on Reddit.  It gives you a good idea of what retail is talking about.   

Sold some of the longs bought during November opex week but still holding about half, looking for more upside.  SPX is getting closer to where the buying should slow down.  But the strength has been surprising and greater than expected, which means it probably goes higher than expected.  SPX 6900 is possible sometime in December.  In hindsight, it looks like we got the panicky bottom after the sell the news reaction to the NVDA earnings beat.  So many traders have been taught that good news, bad price action is bearish. That kind of  thinking probably exacerbated the selling on Thursday and Friday, causing weak handed retail traders to throw in the towel.  

We have a big gap down as there is a Thanksgiving holiday hangover.  However, the strength off the November 21 bottom keeps me holding some longs looking for a bit more follow through buying.  It will get choppier as the fear has subsided quite a bit, so looking to sell remaining longs soon.  Also, the continuing relative weakness of bitcoin is a bit worrisome, although most of those negative effects should be behind us.  There are some positive catalysts remaining such as the Supreme Court decision on tariffs and Trump's pick for Fed chair.  So I'm reluctant to put on shorts before either of those news events come out.  

Bitcoin Led Market

Bitcoin is the talk of the town.  Saylor is still pumping bitcoin.  Its probably been the most hyped up thing since Trump got elected, so you know there are a ton of bagholders in it right now. A ton.  That explains why its trading so heavy even with the SPX down less than 5% from all time highs.  Bitcoin has dropped 30% from its all time highs.  It underperformance vs Nasdaq YTD continues.  

BTCUSD vs Nasdaq

When the market is going up, all they do is talk about the big cap stocks that are going up the most. When the market is going down, all they do is talk about the big cap stocks that are going down the most.  Bitcoin has joined the pantheon of the Mag7 stocks in terms of most talked about financial asset.

Now that bitcoin ETFs have gathered a ton of assets under management, it starts to act more like a highly volatile, big cap stock.  It also increases its correlation to the stock market, which was already high to begin with.  Its only gone higher since IBIT came out.  You can put bitcoin in the meme asset bucket along with the meme stocks.  It has no intrinsic value, like the meme stocks.  The reason meme stocks seem to always be overvalued with bad fundamentals is because stocks with reasonable valuations are usually not volatile.  That is the number 1 requirement to become a meme stock.  Volatility.  The number 2 requirement is strong historical performance.  This is necessary because retail investors are great at extrapolating past performance into the future.  So anything that's volatile and performed well over the past 3 to 5 years could become a meme stock/asset.  The most recent members of the meme asset family are gold and silver.  That means that 1. gold and silver will remain volatile until it loses it meme status.  2. gold and silver are likely to underperform a 60/40 stock bond portfolio over the next 5 years.  

The investors that are getting hurt the most right now are retail investors.  Institutions aren't doing great lately, with their overweight to the Mag 7, but they hold relatively little bitcoin, or meme stocks so they are not doing too bad.  Retail investors are the ones that are enamored with bitcoin.  Its retail investors who have the get rich quick mentality, buying bitcoin, ether, crypto treasury stocks, meme stocks, and call options on big cap AI names and their favorite meme assets.  Those have all gotten crushed.  

 

Institutional investors on the other hand have a keep my job mentality, which means being closet indexers, sticking with megacap tech, and holding little cash in a bull market so that they don't underperform.  Cash balances are now down to 1.2% of total assets at mutual funds.  

Here is the latest look at performance of stocks with most call volume vs Russell 3000.  This is a window into how retail investors are performing vs the SPX.  As you can see, its been straight down since the spike higher in October, now down towards the tariff tantrum lows in April.  Easy come, easy go.  Most retail investors are hurting right now.  They are in a similar position to the immediate aftermath of the blowoff top in March 2000.  So they are probably feeling similar to retail investors back in April 2000.  

 

Retail investors are driving this ship.  It is quite the change from post GFC environment, when retail investors were absent, and only institutions were relevant.  Now its institutions that are reacting to the moves caused by retail.  Its the tail wagging the dog.  

You have to put yourself in retail investors' shoes to understand the movements of this market.  As a whole, retail investors like buying dips, and it has worked over the past few years. But they also like selling the rips.  But they don't like selling for a loss.  This makes it likely that the first few dips get bought, as retail deploys the free cash they have left, like they have been during this selloff.  But with dips becoming more frequent, they run out of that dry powder to keep buying the dip.  I don't believe they've completely run out of dry powder, but they are running low on ammo.  

With so much retail underwater and looking to bail out on rallies and at break even, previous support levels, high volume nodes where lots of retail investors were buying the dip, are where they will sell the rips.  Previous dip buying support levels are now sell the rip resistance levels.  Right now around SPX 6690-6720.  

 

Hedge funds have been much less bullish than retail during the April to October rally.  They haven't bought into the bullish story lines about AI.  In this month's selloff, CTAs and discretionary funds have been reducing equity exposure, putting them towards neutral to slightly underweight.  Unlike 2022, it won't be the hedge funds panic selling into the weakness in the next bear market.  They are playing it conservatively this time around.  The next bear market will be led by retail investors selling.

We've seen a dramatic reduction in call volumes relative to puts.  The ISEE index, a ratio measuring calls vs puts has gone down a lot over the past few weeks.  Put/call ratios are getting towards levels where you see intermediate term lows in a bull market.  If its a bear market, put/call ratios can get much higher than this.  But the base case is we're in a sideways market that is neither bull or bear.  

 

There has been extremely elevated insider selling activity over the past few months, higher than we've seen over the past 25 years, according to the below data.  This confirms my suspicions that retail is absorbing supply from smart money investors that are selling into the high prices.  

 

All the bearish talk about the Hindenburg Omens in late October/early November were correct.  Its usually not the case that when a lot of investors point out a bearish technical indicator, it actually follows through on the downside.  Hindenburg Omens don't always preclude bear markets, but there were a large cluster of Hindenburg Omens in November 2021, a couple of months before the start of a bear market.  And there was a huge mass of Hindenburg Omen signals that showed up in 1999 and 2000.  The internal divergence signals are carrying some weight this time, meaning that it could be a signal of a more vicious down move in a few months.  

 

It was quite a roller coaster ride last week.  NVDA earnings were a huge fake out, something that your rarely see of that magnitude.  This market is no longer that boring market that you saw from July to October.  There are a lot of weak hands out there and they have been exposed.  However, we've had a tremendously strong rally from the April lows to the October highs, with very little opportunity for dip buyers to buy.  That means that you have a fair number of investors who are looking to buy weakness that they didn't see for most of the past 6 months.  Those dip buyers should provide a floor for the time being.  But with each successive dip, it will get more dangerous to keep going back to that well of buying weakness.  

Bought the dips on Wednesday and Friday.  These are just trading longs which I intend to sell on any rips towards SPX 6700.  Initially, the plan was to play for a bigger move higher, but I would rather play for more choppy conditions and free up capital to buy the dip again if we go right back down.  It was notable that the rally on Friday was concentrated in the Russell 2000, which easily outperformed the Nasdaq and SPX.  The Nasdaq was the weakest of the 3 indices, which is not a good sign for a long term bottom.  Instead of a V bottom, we may get a U bottom this time around.  Based on the high volume selling and opex related weakness, it does appear that Friday was the low of this move, but it wouldn't surprise me if we revisit that support zone soon.  

I continue to believe that its a choppy range bound market, which favors fading moves at the edges of the range.  The bottom end of the range looks to have been set on Friday, around SPX 6530.  The top end of the range looks to be around 6900, set post tariff deal in late October.  That range will provide a rough guide to navigating the remainder of the year.  Its too early and not enough dips have happened to start a bear market.  If we get some more chop for the rest of the year, that could set up a nasty January when traders look forward to what happens in 2026.  

It was the Best of Times....

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of light, it was the season of darkness, it was the spring of hope, it was the winter of despair.”

― Charles Dickens, A Tale of Two Cities

Just a few weeks ago, retail investors felt like they were on top of the world.  NVDA was hitting all time highs above 200, TSLA was above 450, PLTR was strong, and the quantum, nuclear, AI data center, and space names were all close to all time highs.  Now, there is absolute wreckage in the retail speculative favorites.  Retail investor hell.  And SPX is barely down 2% from all time highs.  

When we look back at this bubble, the story will be of how retail investors once again piled into the most overvalued companies and the most worthless assets, buying the most at the top, and riding it all the way down to the bottom years later.  History doesn't repeat, but it does rhyme very well.  This is 2000 all over again.  Back then, it was also retail investors who drove tech stocks to nosebleed levels, feeling FOMO, talking about stocks all the time, getting NASDAQ vanity license plates, only to see the market crash over the next 2 1/2 years.  

They say it takes a new generation for investors to forget, to get tricked by the market all over again.  Well 25 years is a generation.  Most of these retail investors who are piling into bitcoin, ether, quantum, AI, nuclear, space stocks were in diapers when the dotcom bubble burst.  They have no clue what's coming.   Now they have been conditioned to BTFD.  They believe that anytime the speculative garbage goes down, it will pop right back up, like it did from the bottom in April, all the way up to the top in October.  Or if there is a real bear market, then it will pop back up in a year or two, to much higher highs like from 2022 to 2025.  They haven't experienced a true gut wrenching bear market like 2000-2002, when the market went down for months at a time, with weak bounces that only led to more selling down the line.  

Retail investors have replaced hedge funds as the marginal source of supply and demand in the stock market.  It is clear as day that retail investors were driving the huge up move in speculative stocks and cryptos from May to October, and now that their powder is no longer dry, the demand for these names have disappeared.  Institutions don't want to buy their bags.  The only people even thinking about buying this speculative junk are retail, and they are already all-in.  

Now that retail has already bought up all these stocks and cryptos, they have less capital to actually put to work.  Therefore they've tried to get the most bang for their buck by moving from stocks to options.  Most of these speculative stocks are money losing companies in the Russell 2000.  The call volume has skyrocketed for these speculative names.  

I thought we wouldn't see the retail call frenzy like 2020 and 2021 again for decades, but its already happening, and even to a greater scale in 2025.  This is not sustainable.  In fact, the selloff in the past 2 weeks has been led by the Russell 2000, which is filled with these money losers that retail investors love.  The MEME stock ETF, which debuted a month ago, has basically gone straight down, losing 35% in a month.  During the same time period, the SPX is basically flat.  35% underperformance.  

Similar underperformance for bitcoin, which is getting pounded almost every day, now under 100K.  This so-called store of value, with all the "good" news pumping out from the White House, has managed to suck in a lot of late comer, me too investors who provided the exit liquidity for OG whales who have been dumping en masse for the past 5 months.  

Wall Street was not designed to enrich the retail investor.  It was designed to enrich the insiders, the sellers of stocks, the promoters, the investment banks and HFTs.  Almost all of the speculative garbage that peaked out in October had heavy insider selling.  Since that October peak, it has been straight down for the quantum, AI, nuclear, and space names.  

There are a lot of ugly charts out there.  A lot of blowoff tops.  My mistake during this latest pump and dump of these speculative stocks was to get in too early and get out too early, after making just a small amount.  I was still thinking that these stocks would stay afloat longer, and follow the Nasdaq more closely.  That was a completely wrong view.  Now its clear that these speculative stocks are trading on another planet, that is vaguely tied to the Nasdaq.  Its more like an on/off switch for these stocks.  Its either continuous buying, or continuous selling.  There are very few counter-trends that are worth playing.  You have to be a trend follower for these stocks.  I'm sure they'll be a dead cat bounce eventually, but probably from a lower price point.  

We got the relief rally on the government shutdown ending and then when the vote passed, we got the selloff.  Just a classic buy the rumor, sell the fact situation.  The market is no longer in an uptrend.  It doesn't mean we are in a downtrend.  Its a trendless market now.  The supply demand is much closer to equilibrium.  Which means that both rallies and selloffs will be shorter, and choppier.  You continue to hear more angst about AI, and its boondoggle nature which is starting to become more apparent with bears like Michael Burry screaming about it.  Its ironic that he's getting loud again right after he closed his fund, which probably incinerated a lot of investor capital by buying puts on high flying tech stocks for the past 2 years.  He probably didn't want to work for just a management fee while he tried to dig himself out of a massive hole to get back to his high water mark.  Better to just take his money and run, collect 100% of the profits for himself rather than sharing it with his investors when the bubble pops.  

We got some gyrations with Fed speakers coming out hawkish, putting the December rate cut into question.  It doesn't matter if the Fed cuts or not, as monetary policy without QE is toothless.  Rate cuts don't really matter now.  The short end is much less important than the long end of the yield curve.  With all the T-bill issuance and supply, you are probably taking away more interest income from investors than providing interest relief for borrowers by cutting rates.  Anything that would reduce the fiscal deficit (rate cuts will reduce the deficit) is a net negative for the economy.  Its the long end that matters.  And the Fed under Powell won't be doing QE, so it has no serious weapons to use for the next 6 months.

There are a couple of bullish catalysts for the next few months:  Supreme Court tariff decision and OBBB money coming.  I expect a short term bump up in the US economy for Q1 and Q2 when the tariffs are removed and the tax refunds hit peoples' bank accounts.  It could be enough to keep the market afloat even as the AI momentum weakens.  That would draw out the potential top to 2nd quarter of 2026, which would coincide with a potential good news top with the installation of a dovish Trump puppet Fed chair.  2026 should finally be the year that the long term bears get to feast.  

Still think this market will be choppy until November opex.  I doubt you get back to last week's highs this week.  Its possible that you do undercut last week's lows.  But I would think that any drop down towards SPX 6600-6620 would be buyable for a trade.  Nothing to do here, I need to see the market get to the edges of the 6600-6850 range to put on trades.  

Phase Transition

The relentless uptrend off the April lows is transitioning to a more volatile, choppy sideways rangebound market.  For aging bull markets, these choppy markets are part of the topping process before the start of a bear market. 

Its like water that's slowly heating up, you are starting to see the bubbles form at the bottom of the pot, as we reach the boiling point.  This time, lots of people are seeing the bubbles, the AI bubbles.  Its only with the passage of time and more cooking before you start to see the water evaporate, akin to wealth evaporating after the bubbles pop.  

Tops and bottoms in the stock market are quite different in their behavior.  Bottoms are sharper points in time, and there is a lot less time spent trading at the bottoms than at the tops.  The market will often have V bottoms, but not upside down V tops.  

Tops are usually extended processes that can take several months to complete before the downtrend begins.  The stock market tends to give you more time to buy/sell at elevated price levels, to inflict the maximum amount of pain on as many bulls as possible.  During this topping process, as the market goes sideways, investors get less bullish, even if the market makes marginal new highs.  Usually bullish sentiment peaks several months before the final peak in price.  Based purely on the news flow and the excitement post election in December 2024 (peak of bullish sentiment during this cycle), we have not gotten close to that level of bullishness during this latest run up.  And that's with the SPX up 15% on the year.   Knee jerk contrarians will say that less bulls is better for stocks.  That's usually not how it works.  For example, in 2021, sentiment was definitely more bullish in the first half of 2021 than at the end of 2021, even though the SPX was much higher.  Less bullish sentiment at the end of 2021 was a foreshadow of a weaker market in 2022.  

We are getting mixed flows, with heavy inflows into ETFs for the past week and past month, while flows from BofA clients show heavy outflows from institutions, especially tech stocks for the week of Oct. 27 to Oct 31.  I suspect there were more outflows last week during the weakness.  

Top ETF Flows as of Nov. 5 2025

The weakness starting from the traditionally bullish November has caught quite a few investors off guard.  But there has also been a growing number of short term bears who have cited weak breadth, Hindenburg Omens, a more hawkish Powell, and the AI bubble.  Its a muddy picture where you haven't really gotten enough of a washout for the bulls to run wild again, but you also don't have that complacency that is ideal for putting on short positions near the highs.  With the big gap up, we are in a bit of no man's land, in the middle of a range from the late October highs to last Friday's lows.  

Last week, the market did not give a good entry point to short the super speculative names in quantum, nuclear, and space names.  Instead, the heavily shorted names and the crap that was flying in October got killed.  At current levels, its not such a great opportunity to short these retail favorites in the short term.  

As has been the case for the past several weeks, bitcoin is massively underperforming the SPX and Nasdaq during this dip.  What's even more ominous is that the long time OG Bitcoin whales have been dumping aggressively over the past few months.  Bitcoin now looks like the dirtiest shirt in the laundry basket.  You have created a huge number of crypto bagholders not only in bitcoin, but in ethereum, all the alt coins, and in bitcoin treasury companies like MSTR, BMNR, etc.  That overhead supply will not be easy to get through in the coming months.  Considering all the "positive" catalysts bitcoin had this year, with the Administration pumping it, passing bitcoin friendly legislation, and Wall St. finally joining the bandwagon, it appears that you've created a massive good news top that will last for years.  

We got some positive headlines as the dreaded government shutdown looks to be heading to an end, with Democrats caving in and reducing their demands while the Republicans held tough.  Once again, its Democrats who are scared to offend, to upset the masses, while the Republicans play hardball, expecting the Dems to cave in like they usually do.  That abomination, which is Obamacare, is desperately being kept alive by Democrats, who are getting handsomely paid by the health care and insurance lobbies, to keep funneling hundreds of billions of government cheese into their pockets.  The Republicans are not innocent bystanders in creating the fiscal mess.  The OBBB is another unnecessary bill that just increases the deficit by lowering taxes without decreasing spending, while gifting more corporate welfare into the tax code.  

Not much to do here, gut feeling is that the market will chop around between SPX 6600 to 6850 for the next couple of weeks.  Bigger picture, we have probably entered the topping process, which could last from 3 to 9 months, before the start of the next bear market.  As many of you can guess, this feels a lot like 2000, but with less volatility.  With so much money in the US stock market compared to 2000, with more mature companies dominating the top of the market cap lists in the SPX, its harder to generate the same kind of volatility.  But I do expect many more spastic and random 1% up and down days, with less cash flows going to stock buybacks and more going into AI capex.  It will take a bit more time for the AI bubble to burst, as these big tech firms seem hell bent on continuing their FOMO AI spend.  The big drop post earnings in META is the first shot across the bow that Wall St. will not just cheer blindly for ever growing AI Capex.  The honeymoon period for AI stocks is in the rear view mirror.  Things will get real in 2026 when more investors realize that these big tech companies are just burning money in an endless boondoggle.  

Aging Bull

The real economy is getting stagnant.  Ex-AI, there is not much investment.  The little bit of real growth that is out there is just underreported inflation.  It is a bit scary to see such a weak real economy when there is a $2 trillion fiscal deficit with stocks going up 20% a year for the last 3 years.  It is clear now that the private equity bubble has popped, and the ramifications are starting to be felt.  Private credit growth will be going down, as there was a lot of misallocated capital in private equity.  With big cap tech collecting their rents on the rest of the economy, there is a huge number of smaller companies fighting for leftovers from the fiscal largesse, and struggling.  

But the uptrend in large cap US stocks remains strong.  Yes, you are seeing some cracks in a big chunk of non Mag 7 stocks.  In particular, we got a much touted Hindenburg Omen in the middle of last week, with really bad breadth for an up day.  While those are symptoms of a weakening market, its not an all-clear sign to short the SPX.  You want to see more HOs and the uptrend flatten out a bit more to set up a potential playable pullback.  

The pullback in mid October made investors less bullish, with talks of credit crunch, tariff fears again, and of course October seasonality fears.  But the market gave investors very little time to buy the lows, showing underlying strength.  If you didn't have resting buy orders before the dips, you probably missed the BTFD opportunity.  It is now November.  The seasonality bears will now be quiet.  Stock buybacks return.  It is not a time to overthink it.  The odds favor the bulls.  It won't last for long, but it probably lasts until we get close to November opex.  

With the market at such high levels, the upside from here doesn't look great.   You are seeing more demand for Mag 7 call options, with put-call skew for the group at very low levels.  Historically, forward returns during those periods have been way below average.  This environment arises from both complacency and a FOMO performance chase.  This bid for Mag7 call options after an extended run higher is reminiscent of late 2021 and late 2024.  Both instances preceded big drops in the market.  

Retail investors are aggressively positioned for more upside.  BofA private client asset allocations show clients holding the highest equity allocations in its recorded history, matching levels seen in late 2021.  

There are some bullish catalysts on the horizon.  The fiscal package passed earlier this year (OBBB) provides a lot of economic pump for Q1 and Q2 of 2026, which will help US growth.  This doesn't include potential reduction in tariffs which are likely, in my view, after the Supreme Court makes their decision on the Trump tariffs later this year.   The Supreme Court decision is an underrated event coming up.  A lot of investors aren't even thinking about it, but it is almost like a free call option for US stocks.  If the tariffs remain, then its the status quo.  But in the more likely case that the tariffs are ruled illegal, that is an immediate shot in the arm for the corporate sector in the US, with immediate tariff refunds, and a drastic reduction in future tariff expenses.  And that is not priced in here.  That would be a big boost to the already positive fiscal impulse lined up for 2026.  

With both the fiscal juice from the OBBB and no more Trump tariffs, you could be looking at an environment where investors get excited and push stocks even higher.  I don't think you see a blowoff top due to positioning, but you could see a grind higher in the first few months of 2026.  

If we do get that grind higher in the 1st half of 2026, that would take the market to truly nosebleed levels, just as the fiscal juice starts waning in the 2nd half of 2026.  That would set up a brutal 2nd half of 2026 for the markets.  

We are in the late stage of the bull market.  Its going to get choppier, and the uptrend will flatten out.  But its going to be a minefield for those blindly shorting betting on a burst of this bubble.  I see particular weak spots in retail heavy names and sectors, such as the highly speculative quantum, nuclear, AI data center, and space names.  In addition, I particularly see that the crypto space is saturated with bagholders now and will be trading heavy relative to Nasdaq/SPX.  For index shorts, its going to be tricky.  Betting against retail, who are up to their eyeballs in risk exposure, will be easier than betting against the foundation of the bull market, which is the SPX/NDX.  

Mostly in cash, looking to short speculative names on a rally in the coming weeks.  

Tariff TACO Rally

Here we go again.  Another round of TACOs.  Another gap up.  The SPX looks unstoppable.  We had a VIX spike on a tariff crisis that went away after 2 weeks, and a private credit crunch, that went away after 2 days.  Add to that a below consensus CPI number, and suddenly the SPX has blasted through to new all time highs.  Something just didn't smell right when the VIX spiked up to 28 on less than 3% dip in stocks.  That speaks to speculators being too short in VIX, rather than an omen of bad things to come.  I heard too many people mention that a rising VIX with a flat SPX is a bad sign for stocks.  It was for 1 day, on Friday October 10.  Since then, its been a great sign for stocks.  You cannot get obsessed with one indicator that shows bearishness.  Especially when many on Twitter are mentioning it.  Its the punch that you don't see that hurts you, not the punch that you can see from a mile away.  

Retail investors are winning, and hedge funds are losing.  The most shorted names have squeezed a lot of hedge funds, who are keeping large gross exposures.  Meaning they have lots of longs and shorts.  But the net exposure for fundamental based hedge funds is low on a 5 year historical basis.  When hedge funds are neutral to slightly underweight equities while the SPX is hovering at all time highs in a clear uptrend, being short is hazardous for your wealth.   While retail investors are usually a fade, so are hedge funds.  Especially when hedge funds are fighting the tape.  From GS Prime broker data, US fundamental hedge funds long/short ratio is actually lower now than in the bottom of the bear market in 2022!  BofA flow of funds data confirms that hedge funds have been selling into strength for the past several weeks.  Hedge funds are very skeptical of this bull market.  

Its eye-opening to see a group of fast money investors like fundamental hedge funds fight the bull market like this.  They usually follow the trend.  It gives me pause when I think about shorting this monster.  

In the bond market, the action has been stale.  With Treasuries hanging around 4% 10 year yields, I see little edge either way.  4% 10 year yields seem about right for this market, where you have the real economy slowing hurting the lower to middle class, with fewer jobs, but the stock market and AI economy on fire, boosting the upper class.  The consensus seems about right on the economy, which means the bond market has little to no opportunity here.  

Without COT data, its harder to figure out the positioning on the Street.   Flows data seems to show that retail has been buying while hedge funds have been selling.  Just looking at the price action in retail favorites shows that retail investors have been quite active in this market, and are positioned heavily long.  The put/call ratios have shown heavy call buying since early September, except for the past 2 weeks.  It appears that call buyers have taken a breather, and gotten less bullish after that October 10 tariff scare from Trump.  That now appears to be over, with another TACO delivered via international air mail by  brown noser Bessent.  

Closed out the SPX short and single stock shorts last week into the brief dip that we saw on Wednesday, to exit shorts as gracefully as one can hope for in this bull market.  A couple of weeks ago, I was regretting not being short before the big one day drop on October 10.  Now, I am actually regretting not buying the dip during the VIX spikes, to play for a November rally.  Of course, the market never really gave you much time to buy dips as they went away even quicker than they came, so I am not the only one feeling that way.  

Its fighting an uphill battle to short now, with positive seasonal forces and the return of stock buybacks.  It appears that the brief dip we saw earlier in the month was the BTFD moment, and its clear skies above for at least the next 2 weeks.  

As the SPX hits new all time highs, I will be paying attention to the retail speculative favorites that have already peaked out.  I see plenty among the  quantum, nuclear, space, crypto, and AI data center names.  Those will be prime targets for shorting when the SPX uptrend begins to flatten out, probably sometime in mid to late November.  You have to give the bulls room to run this bubble higher,  to not get run over.  I may not even short SPX, instead focusing on shorting the more volatile and speculative names.  I see much better risk/reward in those than in the overall market.  

Bubble Recognition

They are finally beginning to recognize the bubble.  The AI bubble.  The circular financing.  The Open AI circle jerk.  But they still don't recognize that there are other bubbles.  The bubbles in super speculative, highly shorted stocks.  The bubbles in crypto and gold.  The bubble is far more expansive than just AI.  

Ironically, the weakest performer during this small pullback in risk assets is crypto.  Even though crypto has gone up way more than stocks since 2020, you hear very little talk about there being a crypto bubble.   But the past several days has shown that the weakest hands are in crypto.  When you see bitcoin go from 125K to 102K in a few days when the SPX just has a 3% pullback, you see where the paper hands are.  Of all the bubbles out there in the market, crypto has the least inherent value.  It is the ultimate meme asset.  With meme assets, investor sentiment is the only driver.  There are no buybacks in crypto like you have in stocks.  Crypto treasury companies can only issue stock to buy cryptos if there is bullish sentiment.  There are no value investors in crypto.  They are get rich quick assets.  They attract young investors looking for fast gains.  Many high leveraged, trying to juice up a very volatile instrument.  

It is sad to see so many young investors get duped into buying alt coins, buying into the hype drummed up by the Administration, by crypto pump and dumpers, by those looking to sell their bags to the greater fool.  These crypto exchanges are not real exchanges.  They are not there just to match buyers and sellers.  They are looking to profit off of forced liquidations, taking the other side of the forced selling.  The crypto exchanges had a field day on Friday, October 10, when you had mass liquidations in all the cryptos, especially the alt coins, many of them dropping 99% during the liquidation drive.  Straight out of the late 1800s.  Bucket shop drives.  These crypto exchanges are modern day bucket shops.  

Outside of AI, you also have loads of speculation in quantum computing, space-related names, and nuclear stocks.  It was odd to see mega cap tech stocks trading weaker than these highly shorted spec names during the early part of this pullback.  But then most shorts must have covered as you saw the opposite later in the week.  The price action has been wild, and the VIX continues to be inflated.  You are seeing a lot of intraday and overnight volatility in the SPX but limited day to day volatility.  The dip buyers are very active and aggressive.  They are not letting the SPX stay down.  When they sense that the market is making a short term bottom, they rush in to buy.  Its FOMO + BTFD.  

It doesn't help that you have hedge funds actively shorting this market.  I usually don't like to stay on the same side of the hedge funds when they are fighting a bull market.  It probably means we have new all time highs in the near future, although I don't expect a "blowoff".  

I hear many investors now, parroting Paul Tudor Jones, calling for a blow off top in this AI bubble.  But when investors start to recognize that stocks are in a bubble, they lose conviction, not gain conviction.  Investors are heavily allocated to stocks but with declining conviction.  That is a not a situation conducive to blow off tops.  Besides, blow off tops are rare in the stock market.  It happened once in the Nasdaq in 2000, but the SPX during the same time didn't have a blow off top.   When investors are heavily allocated to stocks with declining conviction, you are much more likely to get a flattening, choppy top.  I believe we have started the topping process, which could be quite extended.  Given the supportive monetary policy, as well as fiscal goodies from the OBBB in 2026, this thing won't roll over quickly.  I expect marginal new highs to come over the coming months.  I could see this process extending out into the middle of 2026.  Perhaps we get a good news top right after the new Fed chair comes in and coos dovish in June 2026.  

For the next 8 months, I expect a market similar to the first half of 2015, where the market was choppy, but grinding very slowly higher, with declining bullishness as the year went on.  Then the bottom fell out in Q3 of 2015.  That would be my base case for this market.  Of course, this time, I would expect a much bigger drop than in 2015.  

We got the macro bears on the prowl late last week, having a field day talking about credit crunches in private credit, SOFR anomalies, and inadequate bank reserves.  They made a mountain out of a molehill.  While I am short, it is not because of some two-bit regional banks having some bad loans to private credits.  Back in the day, when Jesse Livermore was short something he wanted to get out of, he would rapidly sell a small, illiiquid market like oats to scare the crowd, using it as bear bait, in order to cover his underwater shorts in a bigger market like corn.  In fact, if I were a hedge fund with a big short position, I would do what Livermore did in the past and sell a closely watched small, illiquid market like the regional bank ETF, KRE, and watch the crowd go into a tizzy and start talking credit crunch, Silicon Valley Bank part 2, etc.  That would give the hedge fund the liquidity to get out gracefully from their underwater short positions.

The more you observe the markets, the more you realize that speculation is as old as the hills.  So many parallels to Livermore's trading days and today.  

Trump caved on Friday, trying to talk down the China tariff tough talk.  TACO is alive and well.  Still think investors are too complacent here, despite the "credit crunch" fears whipped up on Thursday.  Have a small short position entered in the middle of last week.  Will give it a few days to see if we get one more dip, hoping for some classic post opex weakness.  Will not be overstaying my welcome, as the stock buyback window begins to open up at the end of the month, and positive seasonal forces will be at work soon.  

The Straw and the Camel

The Friday Trump tweet was the straw that broke the camel's back.  Its easy to forget about all the other straws that were added onto the camel, but they had much more to do with the big drop than the tweet.  Lots of excesses were building up in the system, one straw at a time.  The massive inflows into equity and crypto ETFs, the rampant call buying, the lack of realized volatility.  People were talking bubble, but with the view that the blowoff top was ahead of us, not behind us. These straws already were placing a lot of stress on the camel.  It just took a Trump tweet to collapse the camel's back.  

Now all the Monday Morning QBs will say that Trump took the market down, and that the TACO will bring the market right back up to where it was before.  That's unlikely.  This move down wasn't about tariffs but a return of volatility.  We could get a 1-2 day bounce, but I think this will last until more puts are bought and investors are more protected.  After that, we could have a reflexive rally later this month.  I would guess this pullback is at least 5 days in length, although I don't expect it to be very deep because investors will likely see through the tariffs, and there is still a lot of greed in this market that will remain until you get more signs of weakness in AI + high beta spec names.  Those stocks are still very strong relative to the market vs. where it was the last time SPX was under 6600.   

While there are still some tariff bears out there, a lot have been taken out and shot, with much less in their pockets.  And the remaining ones aren't so loud and proud.  Tariffs are a paper tiger.  They won't last.  The Supreme Court starts arguments on Trump's tariffs in early November, and should come out with a decision before year end.  All the lower courts have rescinded the tariffs by wide margins.  That already signals that odds heavily favor Trump's tariffs being ruled illegal.  The Supreme Court has a conservative majority, but these judges definitely care more about their equity portfolios than Trump's ego.  Besides their selfish desires, they have legal reasons to rule against tariffs.  Many of these conservative judges tightly follow what's stated in the US Constitution.  There is nothing in the Constitution that gives the President the right to tax.  Tariffs are a tax.  That's the power of Congress.  

On Kalshi, odds are at 38% that Trump's tariffs remain.  I would say the actual odds are much lower.  You have to realize that lots of these bettors have a political bias, and many Trump fans/Republicans will vote that Trump's tariffs are going to stay.  That's the reason a lot of these 80/20 scenarios on politics end up being 60/40, or 55/45 like the Trump/Harris election odds in 2024.  A lot of people vote their political bias when it comes to political betting.  That skews the odds closer to 50/50, which is the approximate ratio of Dems and Repubs in the US.  

If I had a Kalshi or Polymarket account, I would bet heavy on the Supreme court ruling against Trump's tariffs.  I view it as almost a slam dunk, similar to Trump's victory last November.  If the Supreme Court upholds the lower court rulings and rule against Trump's tariffs, that makes Trump's tariff tweets toothless.  And all of that tariff money has to be refunded, which would end up being a huge corporate tax refund that would be stimulative for stocks.  This is the one bullish catalyst I don't want to be short ahead of.  Its also why I think this trade war is basically over.  Yes, Trump can use other legal sections to put on tariffs, but they will be limited in duration and scope.  So basically future tariff tweets will be nothing burgers.  And I bet corporations will sue immediately to get future Trump tariffs repealed and outlawed.  

The one force that is more powerful than the US President is the corporate lobby, which rules over Washington DC.  Corporations are the main financial engine for politicians and their campaigns.  Politicians will not bite the hand that feeds them, especially when it would also hurt the stock market.  

Friday did show where the weak hands were in this market.  Clearly, the weak hands are in the crypto space.  Bitcoin flash crashed down almost 20% at the end of Friday.  Lots of alt coins went down over 50%.   It was a massacre for those leveraged long cryptos.  The insiders at the crypto exchanges must have had a field day picking off retail traders and buying the liquidations at fire sale levels.  Crypto exchanges are modern day bucket shops.  When there is no inherent value, volatility can rise quickly.  Because there are no value buyers.  

Its disappointing to miss the index short waiting for the perfect setup but that's the price for being selective.  Missing trades is part of the game.  We have a big gap up on the TACO trade.  I see very little upside from this gap up, but I will not fade it.  I may put on a small short later in the day if we get a gap and go scenario after the cash open, perhaps around SPX 6660 to 6680.  

Speculative Fire

They are going out on the risk curve.  Its not enough to just hold high beta stocks like NVDA, TSLA, or PLTR.  They need to dial it up and trade call options on those names.  And if they don't want to trade options, they just go to even more speculative names like a LAC, IONQ, RGTI, or down to low dollar stocks like PLUG.  Bitcoin is back near all time highs.  It took just a week to go from 109K to 124K.  

This reminds me of November 2021, which was the 2nd wave of speculation in the Covid bubble after the 1st wave happened in January/February 2021.  The 1st wave of the AI /debasement/Trump bubble happened in November/December 2024.  We are getting the 2nd wave now in October 2025.  You can judge these speculative waves by watching the Russell 2000, which really only comes alive and bursts higher when speculation is hot.  The Russell 2000  is filled with speculative, nonprofitable, high beta names that only catch fire when the gamblers are on the prowl.  And they are definitely on the prowl.

The bearish catalyst that popped the Covid bubble in 2022 was inflation and Fed rate hikes.  Inflation was rising but the Fed remained dovish in 2021 which encouraged speculators to chase after speculative names that are prevalent in the Russell 2000.  

Now, the Fed is tilting dovish and will likely get more dovish with a Trump appointed Fed chair in May 2026.  So what will be the bearish catalyst this time?  It has to be the popping of the AI bubble as reality sinks in that a lot of overbuilding and malinvestment has taken place.  The first signal of that will happen when stocks stop going up on announcements of more AI capex.  We may be seeing the beginnings of that as ORCL and META are not trading as well as the SPX in recent weeks.  Its still early, and you need to see more signs of AI fatigue before the rats jump ship.  But you can't wait too long or you will miss the first big drop from this bubble.  The first drop is always the quickest and most vicious.  

What makes picking this top so difficult is seeing the hedge funds not actively playing this bubble.  Leveraged funds are holding large short positions in SPX futures, as well as not increasing net leverage.  In fact, Goldman prime broker data shows fundamental L/S funds sharply reducing net leverage in late September.  This makes it less likely that you see hedge funds mass liquidate on weakness like they usually do when they are fully long.

While systematic funds are near max levels for equity exposure, the fundamental funds are closer to neutral.  It's much better to fade a market when both systematic and fundamental funds are maxed out for equity exposure.  Tough.

On the other hand, retail investors are piling into equity funds as well as call options.  Call volumes have soared recently.  This can be an early warning sign that a market top is coming around the corner.  It was way too early in January 2021, when the first wave of call speculation hit the market.  The SPX kept rallying for several more months.  It was spot on though in nailing the top of the 2nd wave in November 2021.  It was also a bit early in December 2024, but if you shorted in early December 2024, you would have been able to cash in on a brief, but sharp dip later that month.

These type of 5+ month rallies without at least a 4-5% correction are not common.  You did see one in 2021, and almost saw one in early 2024, but they are unusual.  Usually the stock market is choppier than this.  But this uptrend has been quite smooth, with small dips being voraciously bought, giving bears little time to monetize shorts or put positions.  Usually these type of lengthy rallies end with a sharp selloff.  They aren't always deep, but they tend to be sharp enough that you get a notable VIX spike.  

But the rally in recent days has been accompanied by a rise in the VIX, which is puzzling.  Usually you don't see this kind of persistent bid for VIX when the SPX keeps going higher, in a non-volatile manner.  The realized vol has been very low, but the implied vol keeps going up.  It makes no sense.  And its not as if there is a big future event that is feared keeping IV elevated.  No, the government shutdown is not a feared event.  It could be buyers of VIX ETFs and ETNs which are keeping the VIX well bid.  There has been a lot of buying in VXX, UVIX, and UVXY ever since the market bottomed in April.  But the amount of buying, which is nearly $2B combined over 6 months, is just not enough to distort such a big market.  Usually a rising VIX with a rising SPX is bearish, but there are so many other signals that are flashing bullish right now.  

The market is just too strong to fade here.  Too many risk on signals are firing which make the rally more durable.  I prefer to short a market when SPX is flat to rising while bitcoin and other speculative favorites have topped out and are going down for several days to weeks.  I also prefer to see Nasdaq weaker relative to SPX and RUT. That isn't happening.  And you still have the government shutdown, which keeps a fair number of chicken little investors on the sidelines.  This means when the government shutdown ends, you have chicken little money coming in to lift the market.  So the government shutdown is actually a future bullish catalyst.  And I don't like shorting ahead of bullish catalysts.  Perhaps the market tops despite all the strength in speculative tech and bitcoin.  But to survive as a short seller in a raging bull market, you have to wait for perfect setups to short.  And the current setup is far from perfect.  Watching and waiting, probably on the sidelines until the government shutdown ends.