Rona Wall of Worry

Its the news that the short term bears can always point to.  It's red meat for stock market bears.  The exploding number of coronavirus cases in the US and Europe.  The fear of lockdowns.  It takes a giant rear view mirror to see all the way back to March.  Its the bear's time machine, back to the good old days of March.  It lasted for all of 1 month, but it has left a deep imprint on a large subset of investors, who can't fathom investing in stocks when the economy is so bad. 

I was one of those stock market bears, and I nearly got killed shorting from 2900 holding it all the way up past 3200, on leverage, barely able to wiggle my way out of it by covering on one of those fleeting, but scary dips that looking back, were great buying opportunities.  Bearish at 2900, and bullish at 3550.  LOL.  

I know it seems ridiculous, to be bearish in May at 2900, and then be bullish just 6 months later at 3550, but you have to trade the market that is, not the market that you want.  

The move last week, from SPX 3270 to 3510, over 5 trading days, was a big clue, as to where the market wanted to go.  And that is higher.  Throw out the extreme day to day volatility, which just clouds the longer term picture, and see the forest, not the trees.  With record numbers of coronavirus cases, and what would seem to be horrible news in Europe from the lockdowns, you have the Eurostoxx outperforming the SPX handily, another big sign that its not just the US that is strong now, Europe has joined the party.  So much bad news on the virus, yet so strong of a stock market.  That is flat out bullish.

There is immense underlying strength and risk appetite to buy equities, small cap, large cap, value, growth, international, etc.  And the key is that the election last week, was the big barrier that kept that eager money on the sidelines waiting for the uncertainty to clear, before they put in lots of capital into the stock market.  And the fund flows since last week show that there was a huge influx of money going into equity funds.  While that would often be a contrarian indicator, this time, with so much in equity fund outflows year to date, its just a sign that investors are looking to put money back to work now that the big feared event, the election, is behind us.  The motivated money is looking to buy, not sell, and that usually leads to higher prices.  

I am just playing the money flow game, and not even thinking about the overvaluation, which is extreme.  If all I looked at were the fundamentals, I would be short all the time.  But I am not playing in those very long term time frames, I am looking to catch moves over a few weeks, not a few months or years.  And the coronavirus wall of worry is what the market is climbing, and it can do so until we get to truly excessive valuations and much better economic data, neither of which are likely to happen this year.  

Staying long SPX I bought on Tuesday, and sold some Treasuries bought earlier this week.