Long with an Eye on the Exit

We have quickly transitioned from fear to greed in October, faster than in earlier stages of this bull market, like 2012, 2013, 2014.  It seems investors have been well conditioned to just keep buying once there is a confirmation of a bottom, and buy quickly.  The longer you wait to buy after these V and U bottoms, the worse the entries are. 

It felt a bit easier to get long into the hole in early October than it has been to stay long the last few days as I see the rampant speculation in TSLA, cryptos, and assorted small cap flotsam that retail gets excited about.  But I've resisted the temptation to take profits and stayed with the plan.  The bigger picture of investors having de-risked for much of September and half of October, gives room for the market to run for a bit more time.  Even though speculative names are on fire, its only been burning for about 10 days, so I would give it another 2-3 weeks before the fire burns itself out naturally.  

These fear greed cycles have a natural duration to them, with the swing cycles from local high to low to high.  Usually after an extended pullback, in a strong bull market, the swing cycles from low to high last from around 4 to 8 weeks.  If you mark October 13 as the blastoff point of this rally, we're 3 weeks into the up cycle, giving it a minimum of 1 more week up, but possibly another month higher of grinding up action. 

FOMC meeting is today and I am bit surprised at how strong this market is going into the meeting, with everyone expecting the "negative catalyst" taper announcement to happen.  I thought pre FOMC hedging would provide a buyable dip to get long more into the FOMC meeting.  But perhaps the FOMC hedging already happened last week ahead of tech earnings and after the bad earnings reports from AAPL and AMZN.  Its very possible that the buying pressure is so strong that hedging had a negligle downward effect on prices.  Given the continued steady flow into index and ETF puts, it seems like index hedging has been overwhelmed by heavy equity inflows in recent days.

Its clear that there is a lot of FOMO money looking to get long more US stocks, even as overseas stocks lag and you see signs of economic slowdown in the leading indicators along with high, sticky inflation.  The put/call ratios are very low, and most people are expecting a rally into year end.  A lot of that seasonality based anticipatory buying is happening, and I expect even more after the Fed taper "uncertainty" is cleared up after today's meeting.  

Don't have a strong view on how Powell will come out, thought he would lean dovish all year until he got reappointed but it seems like all the inflation talk has put pressure on him to be more hawkish, and not be so blatant with the lie about transitory inflation.  But at this point, whatever comes out of the Fed meeting, you'll probably see the money continue to flow into US stocks (equity inflows + stock buybacks), and that's probably going to keep a bid in the market until we reach the saturation point.  I'm guessing that saturation point will come around November monthly opex, on Nov. 19.  Staying long SPX till we get closer to that date, and then exit hopefully at higher levels and wait for the next play.