"But as long as the music is playing, you've got to get up and dance. We're still dancing." - Chuck Prince, Citigroup CEO, July 2007.
"What the wise do in the beginning, fools do in the end" - Warren Buffett
World War 3 fears couldn't have come at a better time for retail investors. They can now load up even more on the most speculative stocks at a discount to sell to the greater fools after the no WW3, no nuclear apocalypse relief rally!
The consensus view among the majority that I see on Twitter and the financial media is that geopolitical events are usually buying opportunities, and that the recent crude oil rally won't last, and oil prices should go right back down. It is true that most geopolitical events end up being nothingburgers, and those dips are usually buying opportunities. But that's when there is actual fear that is generated during those dips. Right now, we've yet to see real fear from the Israel/Iran war. The VIX has rallied, bu the market has hardly done anything, only selling off in drips and drabs. As of Friday's close, it was less than 2% down from the recent highs.
Talk is cheap, so I don't fully trust anecdotal evidence. I need to see it backed up by trading and positions data. The put/call ratios have been subdued since Israel started its attack on Iran a couple of weeks ago. There remains a lot of wild speculation in the most high beta, speculative names like CRCL and CRWV. Bitcoin treasury plays that are small cap low float pump and dumps are still hot. Retail investors love this stock market.
It is getting late in this bull market. Really late. There is widespread retail investor participation. Retail flows into the S&P 500 are above the everything bubble days of 2021. You can see this in the huge rallies in highest beta and most speculative tickers. One of the hallmarks of late bull markets is the lack of fear when you have pullbacks, even on "scary" geopolitical headlines. When the consensus view is that pullbacks are buying opportunities, that is when things get dangerous.
The institutional investors are also warming up to this market. Despite the daily Middle East war headlines, investors in the NAAIM investor survey are now just as bullish as they were in February, before the tariff madness.
EPFR fund flows data shows huge inflows into equity funds from June 11 to June 17, estimated at $38.1B for the week.
Still holding the short position put on a couple of weeks ago. The war headlines are a red herring that is taking attention away from what matters more in the next few weeks: the tariff deadline decision. We are heading towards the deadline with a lot of complacency on tariffs, with TACO being the meme of the times. This provides an asymmetric reaction function to bad tariff news vs good tariff news. Good tariff news may take this market up 2-3% over a few days. Bad tariff news would like take the market down 8-10% over a few days. I do believe it will be another TACO moment as the tariff deadline approaches, but I wouldn't bet on it with any long exposure. At the same time, if the market pullbacks ahead of the deadline, I would not want to be short ahead of the decision.
There hasn't been a big move yet, and it looks unlikely that we'll be getting that 5% pullback down to 5700-5750. While I am longer term bearish, I recognize that Trump is likely to kick the can for the tariff deadlines on July 9, which will get rid of the uncertainty for a few more weeks. And crude oil should eventually go down after the shorts all are squeezed out this week due to the war. I expect the Fed to start getting more dovish as the economic data gets weaker. You are already seeing some signs of internal dissent against the non cutting Powell. Waller is trying to audition for the Fed chair role after Powell's term ends, and he's coming out super dovish.
We are in the start of a short term bearish seasonal period after the big June triple witching opex and the start of corporate buyback blackout period. Staying short for now, but will look to scale out of shorts this week on weakness.
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16 comments:
You know what I realized it's better to trade individual stocks than the indexes in this market. Trump and team got this market pinned dawg.
What level are you hoping to scale out at MO?
Actually pretty good to day trade spy/qqq/iwm. ODTE plays galore. Very range bound market.
Oil dropping like a stone and s&p on the up despite conflict still going?
It's just a big ass charade dawg. I bet they planned this shit months ago. Just a nice parlor trick and distraction while they front run stonks.
There's a reason they pin markets. We are 2% away from highs. Guess which way the mkt breaks?
Yes it's over.
Was looking to get around SPX 5900, but it doesn't look like that will happen this time around. Will look to exit shorts gracefully sometime this week.
Agree with Dawg that probably better to trade individual stocks than indices right now. Probably need a few more weeks before you can expect any big moves. Also agree that there is a lot of front running on these announcements. So much grift going on in Washington DC.
You think we can get down to maybe low 6000 before this week ends MO to get out? July looking scary.
I will look to scale out starting today. Not liking the price action for the short side. We could grind higher for several days, and I do not want to be short ahead of any tariff deadline TACO events. By mid to late July, SPX should be ripe for a longer term short, and a much deeper pullback (10%+).
Got out of some of the SPX short for a small loss. Will scale out the rest throughout the week.
what level/time would you wait for to short again?
Rough estimate: SPX 6250-6300, around mid to late July. Need to see how it trades the next 2 weeks. I think it grinds higher at least until the tariff TACO or can kick happens (July 9 deadline).
After July 9, market would continue play on rate cut expectation?
Yes, expectations for rate cuts and just animal spirits.
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