From Bull Market to Something Else

We've gotten so used to being in a bull market that it's quite a shock to the system to see a market that drops big, and doesn't recover right away.  This is a different stock market.  Its no longer the market that spends most of the time placidly hanging out near all time highs, giving investors and traders plenty of time to sell near the highs.  This is a market that now gives you a shorter graceful exit window for longs, and a longer graceful exit window for shorts.  

Despite the news flow and the uncertainty around tariffs and US growth, traders still seem to be looking for that bounce off the 10% correction, like they've seen so many times before.  It should have happened convincingly last week, as we were deeply oversold, but the SPX only managed to retrace about 1/3 of the drop off the highs.  

The price action speaks quite loudly.  The US equity market is saturated with longs, many of them who just recently joined the US exceptionalism bandwagon.  Given how quickly the rug has been pulled, many are stuck with losing positions.  I would imagine many of those that chased the momentum names and the Mag 7 are a bit shocked.  Given how much retail and institutions piled into US equities in 2024, and even the first month of 2025, I can't imagine there being much cash on the sidelines looking to buy US stocks.  Not at these valuations with the current macro outlook.  

During this transition phase from bull market to what is probably the beginning of a bear market, you will get opportunities to trade the choppy price action.  Its likely we'll attempt a bigger bounce sometime in April once the dust settles on the Trump tariff policy.  But that will likely be a false dawn as valuations are very high, overall US equity positioning is too high, and fiscal policy is no longer a tailwind.  Add to that a Fed put that is much further out of the money than in the past, providing less investor protection when growth weakens.  

Its not a positive environment for US stocks.  There will be a stronger technical bounce once you get some of the uncertainty eliminated on tariffs.  That's when you can enter longer term short positions to capitalize on a resumption of the downtrend.  It would be surprising to see this market recover from this correction to make new all time highs given the circumstances.  Its looking like 2025 is a year that rhymes with 2000, the year of the dotcom bubble top.  I will be planning trades accordingly to my long term bearish views when the false dawn arrives. 

The COT data for SPX and NDX futures continue to show asset managers reducing their long positions, although now at a much slower pace.  Nothing noteworthy as the movement from March 11 to March 18 covering the futures positioning data only saw a small bounce in the SPX.  Based on the DBMF ETF positioning changes YTD, it is clear that they have completely sold out of their SPX longs, and transferred them to international developed markets (European equities) longs.  The CTAs are now slightly on the short side of the SPX, which is a big change. Its one of the few positives for those looking for a bounce.  The CTAs are often wrong on their index futures bets.   

We are getting some optimism this morning based on some news that tariffs will be less broad than expected.  With less than 2 weeks till the April 2 announcement of Trump's tariffs, there will be more headlines shaking the market in the coming days.  Do not get caught up being too bullish or bearish following any of these news related moves.  

Got out of the small SPX long late last week, and now on the sidelines just waiting.  If we get a bit more of a bounce, may enter a short position.  If we drop towards the 5400-5500 area with some panic, will be looking to buy that dip.