Dip Buying Getting Tougher

They don't give you many layups in the SPX these days.  If you don't have much time to buy the dip, then it's likely to rip.  If they give you a lot of time to buy the dip then it's likely to dip even more.  Dip buying SPX is profitable, and everyone is on to that game, so dips don't last for long, and you only get good prices when it looks the scariest, in the teeth of the uncertainty, ahead of a possible headline filled weekend, on a Friday.  

I was waiting with both hands to buy the panic selling on the Sunday night Globex open and everyone else had basically the same plan.  There aren't too many suckers selling in the hole in ES these days.  They've been fried over and over again for the past 18 months, and their capital has been shrunk to smurf sized levels.  On the other hand, the dip buyers keep making coin, building up their capital base, trading bigger, and a huge force in the market, causing big V bottom bounces as they buy with reckless abandon as soon as they sense that the bottom is in.  

Back in the old days, when you had a big down Friday with a weak close, you normally had panic hedge selling on Sunday night in the overnight futures as soon as Globex opened.  The fund managers that panic sell don't wait for Sunday night anymore, they do it on Friday at the close.  The markets are smarter than in the past, and you don't see easy trades on the buy side linger for long.  

At SPX 4580, the risk reward for a dip buy is very good.  Now with the futures showing SPX ~4635, the risk reward isn't that great anymore, and even though still likely to see higher before lower, the reward is smaller and there is more risk involved, as it can very easily get back down to 4580 within days.  

Oh, and that omicron variant, the headline of the day.  They sneakily skipped Xi and jumped to omicron.  The Xi variant sounds so much better than omicron.  WHO was looking out for you know who when they made that decision.  Anyway, the 5 minute virus experts are parading on Twitter with their quick takes, assuming that the omicron variant is mild and more transmissible, so supposedly better than Delta, leading to faster herd immunity, and "outcompeting" Delta.  This is based on hearsay from a couple of SA doctors who want to see omicron downplayed, so as to not make SA look so bad.  Its all speculation at this point, but the most likely scenario is that you get similar symptoms and severity as Delta, and vaccine evasion is probably slightly greater as the virus evolves to beat the current defenses out there.  Not much of a game changer, IMO.  Plus, I am sure they will start making annual changes to the Covid vaccines to boost sales and "efficacy".  

Hamfisted lockdowns are going to be fewer and farther between in the future, as the majority are sick and tired of being corralled like sheep and will voice their displeasure towards politicians, especially in places like the US, where you have a less "obedient" population.  Europe is in the middle of the obedience spectrum.  In Asia, they are on the other end of the spectrum and completely "obedient", and do what they are told, no questions asked.  So lockdowns in US are not going to happen, while they are very much possible in Asia and parts of Europe.  

Bottom line, for the stock market, its all about the Fed, and how hawkish they will be in the coming months.  Even though the Fed is always looking for excuses to delay tightening and to be dovish, this omicron variant isn't going to stop them from their hawkish turn unless you see global lockdowns (very unlikely).  In a counterintuitive way, all this fuss over omicron could give the Fed an excuse to be dovish again in December, leading to a face ripper year end rally.  That's not my base case, as Biden seems to actually be a bit concerned about inflation, and that concern should likely flow through to Powell and friends.  

I missed the dip buying chance on Friday, looking for a puke out in the Sunday overnight sesson.   Even though it looks like we'll rally till Wednesday, with beginning of the month inflows likely to boost the SPX, I won't chase this.  If it dips a bit at the open, I'll look to put on a moderate size long in SPX.  After a bounce this week, we should see renewed selling later in the week or next week to revisit 4580, and perhaps get down as low as 4550, the Sept. highs.