A Mess of a Market

The SPX doesn't know where it wants to go.  It looks weak, but its still in a rally window after the fear based W bottom in February/March.  Unfortunately, I overestimated the strength (maybe timing is just off and it rockets higher this week?), and bought the first major dip off the thrust higher in early April.  In a more constructive market, where the Fed governors aren't trying to outdo themselves by trying to be the most hawkish banker, you would see another burst higher after that big bottom in March.  But its been chopping downwards, although a big thrust higher the past 2 days.  

Looking at the options data and commitment of traders futures positioning, the readings are neutral and provide very little edge.  Despite the weakness over the past 2 1/2 weeks, there was not a lot of heavy put buying, which is usually a negative.  Investors speak bearishly, but they aren't acting out on their opinions, as equity inflows are still historically high for the past 3 months.  

Instead of focusing on the macro markets, I should have been focusing on specific sectors which are in strong bull phases with lots of room to run higher on a fundamental basis, in particular the energy sector.  The SPX and NDX are a choppy mess right now and in a phase transition, so probably the best strategy there is just to wait for a bullish extreme, hopefully on "good news", in order to put on a short position.  You can be your own worst enemy just focusing on your main market when the market is directionless.  

I sold a lot of my underwater SPX long yesterday into the rally, although still holding some just in case we keep going higher.  The price action isn't that great so I have reduced.  Will be focusing on buying energy stocks, which seems to be the only place where I can see a big rally for the year.  Don't see much of an edge in the overall market, and my preference will be to sell remaining longs and go short the SPX or NDX  after hopefully a relief rally in May after the FOMC meeting.  

Bonds continue to trade horribly, and the 10 year yield nearly touched 3% in overnight trading before BOJ came to the rescue and caused a little short squeeze.  Longer term, these are good levels to buy bonds, but short term, its not a great time to buy the dip with just 2 weeks left till the FOMC meeting in May, where you will be getting the double barrel tightening of 50 bps and QT.  Its not an event that bonds are likely to rally into, so its probably better to wait till right before the meeting to buy.

This market trades like there is a huge amount of overhead supply, those heavily long US stocks who are looking to reduce their exposure on a rally towards SPX 4600-4700.  The crowd has made an 180 degree turn, rightfully so, from bullish to bearish, and realize that with the Fed reducing their balance sheet + hiking aggressively, with the federal government about to enter gridlock after the midterms, its asking for trouble, as the economy slows and you get both fiscal and monetary tightening.