Sticky Bulls

There are a lot of die hard bulls out there.  That isn't necessarily a bearish thing.  You would think that if bulls are so stubborn and widespread, that the buying is getting near saturation and they would have to become sellers soon, and a bear phase is coming. That's not usually the case.  

From past experience, it's actually better for bears to have bullishness that is widespread but with low conviction. Right now, the bullishness is widespread but with medium to high conviction.  Usually, markets top out several weeks after a peak in bullishness.  So if the bullish psychology persists and grows stronger, as it appears to be the case, that means the ultimate top of this bull move from the March low is still probably coming in the future.   

The only reason that I am short is because the election is less than 3 weeks and I expect the fast money which put on positions this month to liquidate a lot of those new positions ahead of the election.  That should bring some selling pressure for the next 1-2 weeks.  

I am hearing that many brokers are raising margin requirements ahead of the election due to expectations for volatility around the event.  The higher margin requirements could cause some traders aggressively positioned to reduce their positions to avoid margin calls.  Especially if we start going lower from here into the election.  

In the small cap space, I am starting to see a lot of speculation in pump and dumps again.  It seems like the daytraders in the small cap arena took a break from the beginning of August to end of September, and have come roaring back in October. 

There is really only about a 1 to 2 week window here for bears to get to work, they did a little damage this week, but the bulls have been paid to buy any 2 day dips and that's what they did yesterday, and are continuing today.  Due to the stickiness of the bulls, I don't think the SPX can go below 3300 in this brief window where bears will have room to get to work.  The price action is too strong and the bull crowd has so much conviction that a lot of them will be willing to buy a dip down towards 3350-3400 and not feel nervous about it.  

Staying short, but probably only for 1 or 2 weeks more.  Post opex next week should expose some investors with fewer put hedges so that could bring selling pressure.