Slow and Narrow Rally Like August 2020

 This market has been slowly going higher on very low volume, very little excitement after breaking out above previous psychological resistance at SPX 4000.  This reminds me of the slow August 2020 rally where retail traders took a break after a manic June and July where they took stocks from $5 to over $50, they were having a field day and then suddenly in August everything got quiet and the daytraders traded much less.  The chart also has similarities: breakout, low volume, narrowing breadth, distance from the moving averages, etc.

SPX Breakout above 3400 in August 2020

  Back in August 2020, the market had made a huge rally and was hanging out near the all time highs at SPX 3400 and finally busted out above that level in the last week of August.  That breakout above 3400 lasted less than 10 trading days, and resulted in a sharp correction in September. Of course, there were a lot of worries about the coming election in November 2020 so you had a catalyst for investors to reduce risk.  

SPX Breakout above 4000 in April 2021

This time, the SPX has broken out above the psychological 4000 barrier with ease and on low volume, just like the breakout in August 2020 above 3400.  We are on trading day number 9 after the breakout, but this time, there is no negative catalyst that I can foresee (Fed trial ballooning taper?) in the coming months that would gets investors nervous.  It seems clear that the Fed doesn't want to say they will taper until they see the hot economic data coming in for a few months.  That probably keeps them on taper delay until at least July or August, and probably more likely till September.  

So if the August/Sep 2020 blowoff top is going to repeat, it will have to happen on its own, without any known risk off catalyst.  And as the sharp rally in early September 2020 shows, the last part of the top was the steepest, as the SPX went from 3480 to 3580 over 2 trading days before plunging to almost 3300 in less than a week.  

I am looking for a similar steep blowoff top rally in the coming days, to get a good risk/reward short.  If it just grinds higher day after day like the last week, will just watch and wait.  In this kind of super bull market, you can only take perfect setups on the short side.  Otherwise, you risk getting slow boiled in the pot like the frog that's oblivious to the slowly rising heat.  

Also noticing a very subtle shift in tone from the Fed, as the repeated market talk about inflation has finally seeped into the knuckleheads at the Fed.  As more and more get vaccinated and the economy reopens, the Fed will either have to change their dovish stance or be viewed as completely out of touch with reality.  As much as the Fed hates to get hawkish, they probably hate it even more to be viewed as a bunch of idiots who don't get it.  

Its been 4 weeks since the 30 year yield hit a high of 2.50% and has since grinded lower from there.  These bond bear markets work in waves.  The first sell wave from early February to mid March took the 30 year from 1.90% to 2.50%.  After a 4 week consolidation period, its pulled back to 2.30%.  It looks like the second sell wave will start any day now, and the next sell wave will be the one that probably takes the 30 year well above 2.50% and the 10 year yield close to 2.00%.  I expect this next bond sell wave to have a bigger impact on the SPX than the last one, as the SPX is much higher and way more overextended than in March.  It looks like a sell in May and go away setup coming our way.