Slow Summer Trading

 The volatility has succumbed to the summer doldrums.  The volume has dropped off precipitously since end of July, and when traders don't trade, you get less volatility, and lower volatility induces vol-targeting funds to increase equity exposure, because you know, they like to buy when volatility is low, and sell when volatility is high.  In other words, they like to buy high, and sell low.  

The tremendous momentum has finally run over all the bears, and the fear has all but dissipated, which is why you are not seeing those weekly vicious dips like you did even during the steep uptrend from April to July.  Everyone has looked foolish for selling on those dips, so they have gotten smaller and smaller, to the point where last week, the biggest scare you had was on Tuesday, when the SPX went down 50 points in the afternoon.  That was child's play a couple of months ago, now it scares out the fund managers because they are getting used to lower volatility.  

Based on risk/reward, short is the right side, but I will have to admit that we're probably going to have one more last gasp rally this month, to break all time highs, get bulls excited, and bears nervous, before the September rug pull.  

The sentiment is slowly getting more cautious, which is not necessarily a bullish sign for the market.  Bullish sentiment usually tops out before the stock index, and that's what it looks like is happening here.  I have a hard time imagining bulls getting excited to add more exposure at all time highs with the coming uncertainties this fall.  Market hates uncertainty, and its still far enough out there for them to ignore it for now, but by September, it won't be.  

It seems like Trump has concluded that he has a better chance to win the elections with much reduced mail in voting than with a stronger economy fueled by free money from another big fiscal stimulus deal.   He's probably right.  Democrats are much more likely than Republicans to mail in their ballots, since most Republicans are less fearful of catching Covid and more likely to vote in person.   Democrats are reluctant to give Trump the big fiscal stimulus deal without increased funding for the US Postal Service and to the states for mail in voting, and Trump probably is just waiting them out, expecting them to cave in and give him what he wants, free money for the people to goose the economy without any money for the Postal Service to suppress mail in voting.  And if Dems don't cave in, the Postal Service won't be able to handle all the mail in ballot volume coming in, favoring Trump big time.  

Whatever results we get out of the election, expect there to howls of fraud either way, and its probably going to be an ugly scene.  Market is not even thinking about that right now, with many just chilling out and doing nothing during the summer lull, but when they get back to work in September, the theme will be to reduce risk exposure, and that should pressure stocks lower.  

This low volatility lull won't last for long, probably 1 or 2 weeks more, and then its back to fear and loathing mode.