Dying on the Hill of Reopening/Reflation

It feels like we are at the beginning stage of a risk off period for the SPX, but all signs point to it being a shallow pullback.  

The main reason for just a shallow pullback is the pure strength of the SPX and its outperformance vs. global indices, with very few dips, steady uptrend without a euphoric parabolic rise.  With Powell blatantly pandering to the stock market and trying his best to get reappointed by Biden, you will not hear anything hawkish from him for at least another couple of months.  Jackson Hole will be an exercise in mealy mouth rationalizations for staying dovish.  No way he sets the alarm clock for tapering there.  

Another thing I've noticed is a slight bearish shift in investor attitudes towards individual stocks, especially cyclicals and reopening trades.   They are still bullish, but not as loud as before since they are losing money.  With SPX holding up so well, they definitely have not given up on their trades and are hanging on hopes that the market rotates from growth to value. 

Watching CNBC and Bloomberg, Twitter, etc., I still get the same takeway.  There are a LOT of reinflation/reopening believers, many of them die hards.  They are willing to die on that hill of reinflation/reopening/higher rates.  They are seeing small cap underperformance as a buying opportunity.  They dismiss leading indicators, crude oil weakness, Delta variant, slowing China, and downtrending 10 year yields.  

Maybe they will be right, but the weak price action going counter to their beliefs shows that the pain trade is still lower for the industrials, financials, commodities, materials, consumer discretionary, etc. plays.  

We will need to see these reopening trade investors throw in the towel and give up before you get a long term tradeable bottom in small caps.  Seeing how weak Russell 2000 is, it won't take a big down move in SPX for that to happen.  A move down to 4350 on SPX would probably be enough to do it.  Or a choppy 2-3 week period of pullback to 4400 -rally- pullback to 4400 would also get the job done.   

Here is a video from Wall St Jesus, who captures the current environment well.  Not as bearish as he is, but do expect a shakeout of weak longs in the coming weeks.

With such a dovish Fed, you have an implicit put on the market, so the long term risk reward for longs are favorable, even if you buy all time highs.  The wall of worry is still there, with Delta and Fed tapering still keeping investors from going all in.  As long as that wall of worry is there, and there is no euphoria, you can stay long term bullish.  

Targeting 4380-4400 on SPX for a dip buy.