Too Much Liquidity

The S&P is barely down 0.5% in premarket and gold and bonds have already gone wild.  The sharp up moves that happen to bonds or gold when there is even a sniff of risk aversion shows how much liquidity there is in this market.  Even with the Fed tightening.  Remember, all that money that the ECB and BOJ are printing has to go somewhere.  And it definitely isn't just staying in their domestic markets.

It is the main reason why it is so hard to make money shorting the S&P 500, the final boss.  You need to have bonds react less bullishly to risk aversion situations in order for stocks to go down and stay down.  Otherwise, these down moves are fleeting, as the bond proxies in the equity market keep the equities afloat, and when the dust settles, you just have lower bond yields and stocks going back to their pre-selloff levels.

Looking out over the next couple of years, bonds are going to be the place to be when the equity rally flattens out and starts the topping process.  The bond market remains resilient due to the ample liquidity and steady retail inflows.  Europe and Japan are just too weak economically to get away from their NIRP and QE policies.  They will be there to be the marginal provider of liquidity to keep markets buoyant.  I would not be surprised if the ECB follows the SNB strategy and starts to buy equities for their QE program during the next downturn.

I am waiting patiently for the market to get closer to my buy levels, which are between S&P 2410 to 2420.  We nearly got there during European hours, but we've rallied quite a bit from those lows.  Trying to keep this S&P down is like trying to keep a beach ball underwater.  Its buoyancy still amazes.

You still need near perfect conditions to short this market, and with the level of caution out there despite being so close to all time highs, shorting is just not a high probability trade.  It is still a dip buyer's market, and I will continue to use that old, beat up playbook because it keeps working.  Sure, it is going to be a bit less effective than when the playbook was less well known, but it's like going from a 80% win rate to a 65% win rate.  Still high enough to make confident bets on the long side.