More Coronavirus = More Fiscal Stimulus = Higher Stock Market

It's time for a reality check when it comes to who moves markets and who doesn't.  Retail traders are not the ones that have caused a Nasdaq bubble.  They are like the dumb money version of high frequency traders, moving markets in the very short term, over a 1 to 5 day time frame, which is about the length with which their call options impact the market, but having no impact on longer term movements.  

Thus, by deductive reasoning, you cannot gain any significant long termpredictive advantage from looking at put/call ratios and options volume.  However, You CAN gain short term predictive advantage from looking at that data.  And considering the post cliff dive 3 day average of prices for the retail favorites such as AAPL, AMZN, MSFT, TSLA, and FB are much higher than current prices, the dealers have taken off most of their hedges by selling stock to match the dropping delta of the outstanding options contracts.  Since most of that is done, there won't be much more selling pressure unless you get institutions panic dumping shares this week.  I would not bet on that because we are very close to strong support at SPX 3300, and NDX 11000. 

The past 3 days was both a combination of parabolic markets hitting a top and crashing lower, and a growing wariness of holding on to overvalued stocks ahead of the election.  Nothing else matters from now till November.  Vaccine news are just distractions.  Covid and vaccine news is yesterday's story.  The driver of the stock indices will be the election and political fallout from it.  Fiscal stimulation is the only fuel that can move this market much higher.  Organic growth is gone for the long term.  

The US is moving towards the Argentina phase of its maturation cycle.  With no natural economic growth, growth will be maintained through massive deficit spending and central bank money printing.  That is why all eyes are focused on the election.

  And whoever wins, a lot of money will be spent in the next 12-18 months.  The US has become the first developed country to become an MMT country.  Japan may have a huge public debt/GDP ratio, but the BOJ has actually been quite conservative when it comes to M2 growth, as Japan easily has the lowest M2 growth of the G20 countries over the last 20 years.  

The US is a different story.  Not only will it end up having the highest public debt/GDP ratio when the dust settles over the next 20 years, it is already embarking on a huge M2 up cycle which is likely to continue considering the obsession with more stimulus funded by Fed QEs and disregard for deficits or funding budgets with increased taxation.  

Anyway, the big move over the next 12 months will be up, so that is always in the back of my mind as the Argentina of the Northern Hemisphere gets rolling and doing helicopter drops, mainly to maintain political power.  Fiscal stimulus is all about politics.  The politicians could give a rat's ass about the plebeians that make up 90% of the country now.  They only care about the stock market, and staying in office.  Pandering to the public will become more blatant as the years go by.  Deflation is impossible.  All roads lead to inflation which will be underreported as usual to give the Fed an excuse to do massive QE to monetize the fiscal deficits.

We had "bad" vaccine news after the close yesterday, and it just reinforced that SPX 3300 is a buy zone.  As I mentioned earlier, Covid is yesterday's news.  It is not going to move the market for more than a couple of hours at most.  Market now sees Covid as a friend, not an enemy.  More Covid cases = more fiscal stimulus =  rising stock market, especially Nasdaq.   

So actually a Covid vaccine would be a negative for the stock market!  It has turned into the most perverse bad news is good news stock market regime.  The more Covid deaths you get, the bigger the fiscal stimulus gets.  That is what the stock market wants.  It could care less about the unemployment rate.  Or the mortality rate.  Half the population could die off as long as you had more and more stimulus the market would go higher!  Economic data is for the birds.  The dodo birds that are extinct in this market.  They have been killed off with the relentless rallies on bad economic news over the past 2 years.  

I am not bullish on a month long time frame, but I do see room for a BTFD bounce starting today or tomorrow, and lasting into the FOMC decision next Wednesday Sept. 16.  

The playbook is to buy SPX 3290-3320, and sell SPX 3450-3480.  The trending market is over.  It is going to be range bound till the election.  The stock market will gradually price in election uncertainty as the days get closer to November.  It is going to be tapebomb central over the next 2 months, with the outcome of the election not to be decided until several days after election day.  The US government is still a technological dinosaur, so don't expect any quick election results with the high number of mail in ballots.