Bubble Gets Bigger

WW3 was avoided and the market squeezed higher last week.  The BTFD crowd won again, although a 1.5% drop is not much of a dip.  The bubble is inflating again, and that is both good and bad.  Bad if you are short, but good if you are long or in cash waiting to short.   This may be the best thing to happen for the shorts, as such a quick move higher means less possibility of a long term grind higher move.  Those long, slow meat grinder up trends are absolutely deadly for shorts, especially for bears who are long puts.   

In the short term term, there is not much positive for those shorting the market here.  The market shook off one of the worst seasonal periods of the year and just blasted higher last week.  The previous all-time highs didn't even act as a speed bump for this freight train.  Usually you see some hesitation and consolidation at the previous highs, especially after a huge drawdown.  But not this time.  This shows immense buying pressure and its not something I want to fade quickly.  The first half of July is the start of the 2nd half of the year.  Its a time when you tend to see a lot of inflows into stocks and historically the most bullish 2 week period of the year.  

Last week, the big winners were the AI names, especially NVDA, which was the strongest of the Mag 7.  Investors are chasing the highest beta names, as they believe those have the most upside.  The animal spirits are percolating throughout this market.  Its interesting to see though that the recent macro fund favorite, European equities, have been lagging badly for the past month.  It just shows that when investors get greedy, they like to go back to the most reliable and highest beta playbook: US big cap tech.  Haven't seen so much love for big cap tech since 2021.  

A lot of the buying in April and May came from retail investors, in June, a lot of the buying is coming from hedge funds.  Macro HF beta to equities has skyrocketed, and is near the highs in 2024.  

Nothing noteworthy in the COT data last week, asset managers are still reluctant to get back to aggressively long positioning.  Dealers got shorter.  Overall, still a bearish picture for SPX futures, but its been that way for several months.   

I see some tremendous long term shorting opportunities just as the economy is starting to show signs of slowing down (weaker housing market, labor market).  There is a reason that the Fed is starting to get more dovish.  Yet, most investors view the Fed's dovish turn as a big positive.  I would disagree, as monetary policy has lost a lot of its effectiveness with the mass mortgage refi's done in 2020-2021, and the huge budget deficits that provide so much interest income to the wealthy through Treasury issuance.  Lower interest rates = lower interest income coming from the US Treasury.  

Covered my shorts last week for a small loss, but actually excited to see this kind of move up as this bubbly price action sets up a much more volatile and opportunity rich environment later this year.