Trapped by Trump

One thing you can't do when you trade:  believe Trump.  Even knowing him to be a compulsive liar, and a slave to the stock market, I didn't think he would be so easily spooked by a 1.5% drop in the stock market, and backtrack so fast on his "tough stance".  He got me.  His flip flopping got me trapped on the short side.  But more than that, started shorting too early, and got too eager, a big mistake in an uptrending market, when I should have waited for the prices that I wanted.  Now, its too late to backtrack, as we're getting to levels and the number of days since the bottom point to a likely short term top very soon, and a pullback ahead of the election, probably to SPX 3300-3320 area.  If things get really wild, it could go back down to SPX 3230, flat on year, but that's unlikely.

Does Trump wanting a bigger deal mean that the fiscal stimulus deal will get done before the election?  If it is to get done at all, Trump is going to have to complete cave to Pelosi and give her everything she wants.  There is no incentive for Pelosi to give in to Trump and his only hope for a chance at re-election is to give everything that she wants and try to get his name on those $1200 stimulus checks one more time before the election.  

So he probably will cave in eventually,  when the stock market is down a couple of days in a row.  Does it mean the fiscal stimulus passes before November 3?  It probably will get passed, but if its going to pass, its going to be a Democrat backed bill with a few sell-out Republican congressmen looking to get re-elected voting for it. 

In any case, it looks like the market is seeing through all the noise and has basically taken a contested election off the table, because Biden has an enormous lead in the polls, and Trump is basically finished unless he wants to try to play spoiler and scream fraud and use the conservative leaning courts to do him some favors to try to throw out the mail in ballots to give a hail mary chance of winning.  

Looking at the action in the small cap space over the last 2 weeks, the animal spirits of speculation are back with a vengeance.  The institutions and retail are in 1999 mode, looking to speculate and bet on big moves higher.  That's the market at the current stage of the long term boom bust stock market cycle, its been 11 years of a secular bull market, the longer it lasts, the more speculative fever hits the population.  It is something I am well aware of, and do expect a bigger bubble after the election results.  

Many are already jumping the gun, expecting a Dem sweep and a monster stimulus package in early 2021 and are chasing high beta small caps.  I believe many of these chasers will be shaken out during the next pullback.

While the election does offer a small risk-off window this month, overall, it looks like it will go much higher after the election results come out, just because of the bubble dynamics of this market, trading similar to 1999.  And remember, 1999 was the prelude to the biggest stock market bubble top of all time, 2000.  I think that will be repeated in 2021 so I'm not going to be stubborn on the short side.  I'll probably be trading mostly on the long side starting in November till next February. 

Still short a half position, and looking to add in the coming days.  I expect one election worry selloff later this month, and that's probably it for any meaningful downside this year.