Greed Season

The SPX these days is usually hovering around all time highs.  This market is not giving dip buyers much of a chance to get in.  Once again, whatever intraday pullback you get is quickly gobbled up by the underinvested, as you saw on Tuesday, and then back to all time highs on Wednesday.  We are getting a big gap down today but days like today are the exception, and have been rare this year. 

The breadth of the overall market has been poor, which many market participants have noticed.  There are those who look at the breadth, and say that the rally is narrowing and breadth is bad, so the market is vulnerable to a correction.  That may have been the case in the old days, when the Fed actually tightened monetary policy when the economy got too hot and inflation too high, but that's no longer the case.  

The Fed is the 800 pound gorilla in the room smashing all the past statistical work on the stock market into worthless little pieces.  The Fed supplies the fuel, it doesn't direct it.  Its up to investors to decide where to shovel all of that liquidity.  And it doesn't matter if that liquidity is going to large caps or small caps, growth or value, it will lift the overall market, one way or another.  

Its missing the forest for the trees by trying to parse the breadth data and warn about a coming correction when the Fed is pumping $120B/month, and the US government is pumping out trillions of stimulus.  And Biden is not done, he's looking to push out even more pork, and label it infrastructure to make it sound like its actually a worthy investment, when in reality, most of that money will eventually end up in the stock market! 

Even though a lot of investors have now gotten wise to the stock market game, realizing that the economy doesn't really matter, what matters is how much liquidity and stimulus there is in the system.  There are still a large subset of investors who actually think the real economy is the most important factor in determining stock prices.  They get excited by high growth.  The reopening, reflation, etc.  That's the old game.  The new game is all about stimulus, monetary and fiscal.  There is no organic growth anymore, which exacerbates the importance of the central banks and federal  governments.  Otherwise, this economy is stuck on zero, no growth without the stimulants and free money.   

When you have a Fed this easy, with growth this high and with no hint of a change of monetary policy anytime soon, of course you are going to get rampant speculation and money flowing to the stock market.  Of course there will be no fear.  Its greed season.  

I have over thought this SPX rally, trying to avoid the big dips by getting in and out quickly on the swing long trades, when I should haven't been such a chicken little and just rode the wave, just accepting any drawdowns as temporary.  I would have made so much more.  That's history.  With yields going lower and lower, even with new all time highs in the SPX, its providing a huge tailwind to the market.  

Looking forward, I'm stuck on the sidelines hoping for a pullback down towards 4220-4240, to buy before the move back up.  The seasonally strong period in July lasts through the tech earnings season.  Once we exit the seasonally positive time period, by early August, ahead of the potential taper talk by Powell at Jackson Hole in late August, you could get a taper fear based pullback which would be a perfect buy setup.