Fund flows, futures positioning, and fundamental data support the view that this is a bear market rally. However, the price action has been much stronger than expected, surprising many, which has to be respected. Whenever the market does something that surprises the majority, it gets my attention. You never want to just brush it off as if its nothing. It does tell me that the next 1-2 weeks will be difficult to predict. So far, a further move higher looks more likely than a reversal back lower for the next 2 weeks.
Fundamentally, you don't have much fiscal or monetary support. From a capital flows perspective, foreigners, who are heavily overweight US equities, are now going in the other direction. That is after several years of piling into US equities. That will weight on the SPX in the long term. I see some compare this period to 2020, and some to 2022, but I am more pessimistic on this market than both. 2020 is no comparison. The fiscal and monetary support are polar opposites to what is happening now. As for 2022, the monetary tightening was coming in heavy, but the fiscal spigots were still flowing like crazy. 2022 fiscal policy was quite expansive and loose. Nothing like now.
One factor that I neglected in my analysis before putting on shorts in late April was the amount of time since the start of the downtrend (February 20). Its been 75 days since that top, which means we are still early in the bear market (assuming its a bear market). Most SPX downtrends have vicious counter trend moves in the first 3 months of the move. Since we're still within that 3 month window, there is still time for this rally to continue to confound bears and squeeze even higher. Some examples from past waterfall declines and recoveries:
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SPX 2000 |
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SPX 2022 |
Nothing notable in the put/call activity last week, or the COT data. You had a slight increase in SPX longs after the rally, but not really a big move. Similar to the lack of decrease in SPX longs in the prior week when it went down. Seems like the weakest hands have already pared their positions down, so you're not getting big positioning changes despite the extreme volatility. Open interest went down across the major index futures, so traders and fund managers appear to be reducing risk.
Still stuck in underwater SPX shorts. Looking to exit gracefully within the next 2 days. Last Friday's move appears to be a lot of short covering and delta hedging as the IVs went down quite a lot after the NFPs and into the weekend. I don't expect longs to be chasing this kind of a move going into the FOMC meeting on Wednesday, where Powell will likely stay firm and not hint at any moves. The bond weakness is a small positive for bears that comes from the stronger than expected NFP number.
Pullback or no pullback, will be out of shorts by Wednesday. The main reason I do not want to stay short is the price action. When I entered shorts several days ago, I was only expecting a marginal move higher from my short entries. The fact that you got up to SPX 5700 so quickly reveals the underlying strength of this move. Even as there is no real progress in the trade talks. It appears that equities positioning (non futures related) got too light in April, and hedgies and underinvested funds are scrambling to increase net exposure to keep up with the averages. That can go on for longer than people think. These hedge funds are notorious for chasing moves to keep up with the indexes to protect their jobs. So this could last for several weeks if they take their time adding back longs.
74 comments:
Sold QQQ Puts 9.53
Long CEP calls 6/20 40 calls 7
Long BULL 16.30
Long more CEP calls 4.65
Long more CEP 4.25
Sold BULL 15.35
Sold 3/5 CEP calls 6.35
Long BULL 15.75
sold 2/5 CEP 5.87
Long 6/20 QQQ 470 Puts 9.63
Long 2 TTD 5/9 60 Calls 2.52
Long more QQQ puts 9.87
sold 7/12 BULL 14.8
Long KSS 6/20 7.5 calls .66
Partially covered shorts near the close. Will close out the rest of shorts either Tue or Wed.
Looks like a weak open. Any change in your views @mo? Or still looking to exit this am
Looking to exit
Sold QQQ puts 11.91
Out of shorts. See no edge here.
Long GLD 310 6/20 310 Puts 7.4
Short CRWV 54.09
cover CRWV 54.60
Long more GLD puts 7.17
Long PLTR 6/20 110 Calls 8.63
Long more PLTR calls 8.35
sold PLTR calls 8.05
Long more BULL 15.42
sold BULL 14.91
more GLD 6.75
Gold crazy strong. Is something happening?
sold GLD puts 7.35
Long HIMS 6/20 46 Put 5.45
Long more HIMS 5.15
sold HIMS 4.92
Long HIMS 6/20 46 Put 5.10
more HIMS 4.8
sold HIMS 5.33
Long HIMS 6/20 47 Put 5
sold HIMS puts 5.25
Have to battle for quarters in this market
Long GOOGL 155 6/20 calls 7.7
more GOOGL 7.50
more GOOGL 7.10
more GOOGL 6.95
more GOOGL 6.55
Shall we short again today? Look like 10% tariff is minimum
Sold 1/2 GOOGL calls 6.95
sold rest GOOGL 7.05
Long WOLF 4.50 6/27 calls 1.40
Long IWM 6/29 199 Put 5.62
Sold IWM puts 6.04
sold WOLF calls .50
Long 6/27 480 QQQ Puts 11.90
Sold QQQ puts 12.76
Long UNH 6/27 400 calls 10.99
Long RDDT 6/27 106 calls 11.85
Long SEDG 6/27 12.50 19.50 puts 2.54
Long more UNH calls 11.95
sold SEDG puts 2.48
Long SEDG 5/16 19 puts .76
Supposedly deal struck with China. Having a hard time buying it. Gap then crap imo.
No details so hard to tell
This is incredible. Broke 5800.
Tariffs with China went down from 150% to 35% looks like. 6000 here we come
Letting the bulls take this higher for a few days and then looking to short around SPX 5900-5950.
Long QQQ 6/30 495 Puts 10.90
sold RDDT calls 12.90
I dont' know QQQ only 6% off the ATH. Is that reasonable?
Long more SEDG puts .7
sold UNH Calls 10
short CRWV 58.70
Long UNH calls 10.35
covered CRWV 58.7
sold UNH 9.86 long more QQQ puts 9.83
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