TINA Rally

It is a lonely equity rally.  The S&P is leading the pack, with the Nasdaq lagging, Europe and Japan trading weak, and emerging markets well off the April highs.  A dovish Fed is not really good news for Europe and Japan.  And it's not as good for emerging markets as most people think.  The emerging markets are held together by China, and it has been lagging badly the whole time from the February bottom to now.

There is something insidious going on in the Chinese financial market and it can only be kept under the rug for a limited time.  Their Minsky moment is coming, and the market is mostly ignoring it.  There is a WSJ article that came out on George Soros being bearish and that is quite interesting to me.  My normal reaction to these kind of articles is that the person in the story wants to liquidate into the story, like Goldman often does.  Like Jesse Livermore did when he wanted to book a winner and have the liquidity to exit gracefully.

But it really does seem like Soros is really bearish and has fully built up his shorts and can now let the cat out of the bag.  What I saw in the article is well known, but the market is mostly ignoring it right now.

On CNBC Fast Money yesterday, you had an exasperated bear who has gotten gored badly and still remaining defiant, but not shorting, instead going long gold and Treasuries.  Then you had others who were bullish, who all admitted that fundamentals don't matter right now and that it's a TINA rally.  I kept hearing TINA.  There is no alternative. These are not the foundations of a long lasting rally.  They are just hot money flows mixed with short covering.  I was surprised that no one seemed to really care about Brexit (I don't care either, but it was supposed to make traders bearish until the vote happened).

This market looks like it is in the final throes of a short covering / FOMO / TINA rally.  Add crude oil convincingly breaking out above $50 and you have an overload of bullishness.  All the while the fundamentals remain weak and the only thing that has changed is that the Fed won't raise rates anytime soon.  For all the traders out there, did we really think the Fed was going to raise in June or July?

Last thing, the VIX has remained sticky and refused to go down despite the rally over the last few days.  Usually a good sign that the volatility selling has run its full course and short vol positions are full, and equity weakness is imminent.

Bearish stocks, bullish bonds, and expecting us to top out very soon, setting up a volatile July.