Melting Up

 The markets are super hot.  Bitcoin going supernova parabolic.  SPX making all time highs day after day, Russell 2000 surging higher to shatter all time highs.  TSLA relentless marching higher breaking 800 with ease.  EV stocks ramping higher again with their related SPAC bros coming along.  Biotech staying hot.  This is the hottest market since 2000.  January 2018 isn't even close.  

The parabolic moves increase my confidence that we are a bit closer to the peak of this bubble than I thought a few days ago.   Still a few months away from the peak, but the enthusiasm and fervor to speculate is front loading some of the bubble gains.  

I was thinking about a short at SPX 3800 but the sheer strength of the buying on Wednesday and Thursday after the Georgia runoff and shrugging off the "scary" riots kept me from pulling the trigger.  And we have another gap up this morning.  Wednesday close at all time highs, but well off intraday highs due to the riots was a buying opportunity!  It once again proves that what you see in the news that triggers fear in a subset of investors usually doesn't last.  Riots, protests, civil unrest don't matter.  What matters now is stimulus.  PORK stimulus.  

It is a tricky time for those unwilling to ride the bubble higher, its a bit too early to aggressively short, although tactical shorts at over optimistic moments and after a parabolic rise are ok opportunities, but the better opportunities are buying SPX and Russell 2000 dips on short term stop hunts and shakeouts of weak hands.  

That is why I would only short this market at half my normal position size during those tactical opportunities, but would be willing to go full size on decent size dips in the indices.  

It is clear that Russell 2000 will be outperforming the SPX during this final blowoff phase of the bubble, which should last into the late spring/early summer. With a 50-50 Senate and Dem VP, you have enough votes to pass another big fiscal stimulus package, stimulus checks, infrastructure, and all the goodies that the market wants.  But not enough votes to pass any kind of tax increase or extra regulation that are unpopular among non-Democrats.  So the best of both worlds for stocks, and a nightmare for bonds.  

The market immediately sniffed this out on Wednesday, selling off Treasuries aggressively and the 10 year finally breaking above 1%.  The weakness in Treasuries will be with us for a while, the economy should be roaring by the summer as all the savings and wealth effect from the stock market will drive consumer spending through the roof, along with the re-opening of the economy.   

This will be the hottest economy since 2000.  Hotter than the real estate bubble in 2006-2007, and hotter than the tax cut boost in 2017-2018.  That expectation is fueling the move into the Russell 2000, which have the most economically sensitive names in the market. 

When all is said and done, after the bubble, there will be an immense transfer of wealth from one group of investors to another.  

No need to try to hit home runs now, just play for singles until the truly great opportunities arise later this year.  There will be plenty of chances to hit home runs on the other side of the mountain.  

I am holding off on the short for now, but next week, a potential gamma squeeze higher in the indices ahead of opex Friday, Jan. 15 could provide a premium short entry point to fade this super hot market.  Just watching and waiting until then.