Fast Money is Short Term Bearish

The market was looking for any reason to selloff and GME and the big short squeeze in highly shorted names was used as the excuse.  Do I believe that to actually to be the case?  No.  What you had was an overextended long position among the hedge funds, with high net long exposure.  In those situations, a pullback is always imminent.  And this looks to be the pullback.  I don't expect anything nefarious, and there is a good chance that its just a 2-3 day pullback that goes right back towards all time highs.

On GME.  This has become a cult stock.  Like TSLA, the stock is more famous than the company itself.  No one could give a rat's a$$ about GME the company or how the stores are doing.  Same with TSLA.  Its all about the stock.  GME is now famous for its stock, and that itself means there is a lot of future sticky demand for its stock, from both retail and institutions trying to play for short squeezes and momentum.  The mean reversion to more reasonable valuations will take a very long time.  Just like it will with TSLA.

I've been on the sidelines for most of the month but I did come in to buy the weakness on Wednesday near the close and also on Thursday in pre-market trading.  Its amazing to me how quickly the Fast Money crowd goes from super optimistic to looking for a pullback, just because of GME and the domino effect of short squeezes and forced liquidation in highly shorted stocks?  LOL.  You can't make this stuff up.  

Tony Dwyer, the permabull who comes on CNBC quite often, is a great contrarian indicator when he becomes short term bearish, because it doesn't happen that often.  He was short term bearish in December, looking for a short term pullback, and the market kept going higher.  There are a few other cases where his short term bearishness was wrong.  And one of the talking heads on CNBC Fast Money agreed him.  So a double contrarian indicator.  Anyway, he starts talking about 2010, the flash crash, and how he's short term bearish, and to cover all the bases just in case he's wrong, he says he's long term bullish because of the Fed and Powell.  

No one trades on their long term views.  Almost everyone trades on their short term views, because the people who come on TV to express market views are not long term thinkers.  Almost all of them are trying to catch the next move, not the next BIG move.  So if someone is long term bullish and is optimistic but is looking for a pullback, then they are bearish.  That's how most of these permabulls, of which there are plenty, express their bearishness.  

The market has gone nowhere for the past month, so its making a base near all time highs, and a less than 3% dip gets the "experts" bearish on the short term.  To me, the market looks like its basing near all time highs set to grind even higher.  It is a bubble, after all.  And bubbles usually get bigger until they go parabolic and pop.  What I've seen in January is nothing like a parabolic move higher and a popping of the bubble.  Sure, the momentum names and highly shorted stocks have done well in January, but overall, SPX has gone nowhere this month.  And it appears that pension funds have been rebalancing by selling equities and buying bonds this week, putting some pressure on the stock market.  That should be done by today, the last day of the month.  

On another note, the VIX going to 37 on Wednesday is amazing to me.  That is almost as high as it was before the election in October as the market was making its final big dip before the relentless post election rally.  Realized vol is nowhere close to the implied vol levels shown by VIX.  That is a longer term worrisome sign, that market makers are not willing to sell put protection at reasonable prices.  There doesn't seem to be a lot of hedge funds coming in looking to sell puts to generate income.  Maybe all the put sellers got taken out in March 2020 and are no longer there to sell SPX puts to keep VIX lower.  Instead, they've been busy rotating from big tech to the cyclicals and small cap names.   And the intraday air pockets and plunges lower are a sign of a lack of excess cash to buy the dips and buffer the volatility intraday.  

 
Market does feel saturated with longs but with positive stimulus and re-opening catalysts still ahead, I expect a much bigger move higher, and more optimism before you get that 10% correction.