No More Build Pork Better?

From March 2020, we've been on a relentless run of higher highs and higher lows, spending most of that time well above the 100 day moving average, and above the 200 day moving average since June 2020.  For 2021, its been shallow dips followed by steady rips.  But we've finally reached a price level where the market is struggling to make new highs, and you're seeing a sharp drop in speculative fervor, akin to what you saw in the spring of 2000, and throughout 2015.  

With the massive fund inflows in 2021, the crowd is now about as loaded up on equities, if not more than the peak of 2000, just as we're on year 12 of this secular bull market (the QE bull market).  History doesn't repeat, but it does rhyme.  And human nature has reared its ugly head again in the investment world, getting investors to get bulled up and pour almost all their stimulus money near the bubble peak.  This is setting up for a nasty long bear market in the years to come, as bubble valuations with slowing growth all but guaranteed (unless Democrats miraculously win the 2022 midterms) for the next 3 years.  

The bombshell news of the weekend is not Omicron, but Joe Manchin looking out for his political future and distancing himself from the Dems and Biden by refusing to say yes to the Build Back Better plan.  It should be renamed BPB:  Build Pork Bigger.  Its a cash giveaway and paid for with tax increases, which always gets heavy corporate pushback.  With Biden's poor approval rating, Manchin didn't want to hitch his wagon to that bus that's falling off a cliff.  Manchin may as well be a Republican at this point, he's not going to get re-elected supporting Biden.  He's in one of the most Republican states in the US, so he has to lean right any chance that he can get.  

There are some people trying to make the case that Omicron is a positive because it will outcompete Delta and other variants and make Covid milder.  Wrong.  Omicron is basically a new virus.  Its mutated so much from the original Covid virus that there is almost no immunity you get from it that protects you from other variants.  So you can have Delta and Omicron flourishing side by side.  Its not a competition.  Its just now two types of Rona that can get you.  

I don't expect Omicron to have much of an effect on the economy.  Most people have adjusted to the Covid rules and governments are going to be reluctant to go with heavy handed lockdowns due to their unpopularity.  So I expect little economic impact.

There is a popular poll done every weekend, and I was a bit surprised at the results:  

Usually after 2 straight down days going into the weekend, the crowd gets bearish.  But this was the opposite, the majority are buying the dip and expecting a Santa Claus rally.  When you see that many bulls as the market is trading weak, that's usually a bad sign. 

Despite the bearish signals, I still expect a Santa Claus rally, just because its been such a strong year in the market.  It probably starts sometimes this week, after whatever weakness you see today/tomorrow.  I would be looking to buy dips to sell rips.  You can't overstay your welcome both on the long and short side.  So when you get a good move, its better to be safe than sorry.  Better to take profits a little too soon than trying to squeeze out as much as possible from each trade and risk missing the exit ramp.  

I would be looking to buy dips down towards SPX 4520-4540 today/tomorrow, with a price target around 4650-4680 for later this week or early next week.  This bull is on its last legs, but its not going to die quietly.  Its going to go out kicking and screaming.