Push Pop Bubble

If you've ever played around with push pop bubbles, you can push down on the bubbles, and they go down, but the slightest push back in the other direction makes the bubbles pop up again.  This feels like a push pop bubble market, where you can push the bubble down, but it eventually pops back up without much effort.  It feels so resilient, which is what the market is conditioning traders and investors.  Yet, the overall condition is dangerous, with rampant call speculation and theme stock chasing, high levels of equity holdings among households, and high levels of foreign ownership of US stocks.  

We are close to the end, maybe the end? of the up phase of the market.  You have the return of the retail speculators bidding up speculative theme stocks in  bitcoin and quantum computing (RGTI, QBTS, IONQ).  There is renewed excitement over AI stocks, such as CRWV.  Stocks with high short interest are being squeezed, as hedge funds hold large gross positions, meaning lots of longs and shorts on the books.  Those shorts are squeezing the crap out of their portfolios.  Once again, hedge funds have become the punching bag for the market.  They were the most beared up of all the major institutional groups this year.  

Retail has trounced the hedge funds this go around.  And you can see retail investors getting bold, buying aggressively in this market.  There was data coming out of JP Morgan showing retail investors buying the most stocks ever in the first hour of last Monday after the downgrade of US sovereign credit.  They were also aggressive dip buyers on the Deep Seek and tariff induced dips back in late January and early February.  They may be getting set up again here, with markets showing short term resilience to "bad news", only to see a much bigger down move a few weeks later on no news.  I think it will take a bit longer this time for the SPX to collapse, as we've already had one in April, so its likely to take several weeks for the complacency and positioning to set up for another waterfall decline.  Gut guess is sometime between mid July to late August for that waterfall decline to happen.    

Not much interesting happening on the COT front, as you have asset managers slowly adding long exposure, but nowhere near the highs of late last year.  You are seeing more call buying in the past 2 weeks, back to high levels, where the market is vulnerable to deep pullbacks.  

On a much longer term chart, you can see how extreme the call buying got in late 2024, and how high it still is at the current time.  Even during the everything bubble in 2021 you didn't see this level of call buying.  Retail is basically all in on US stocks.  In particular, the most speculative and highest beta names.  There are flashing amber lights in the background.  April was a big warning, that this market is fragile.  Yet investors have been so well rewarded buying the dip and hanging on to their longs, that they are bold and aggressive, and almost feel invincible.  This is what it felt like in 2000.  

Last week, we got a few scares, from rising bond yields, to Trump's tariff threat against Apple and the EU.  Within a few days, Trump has already retreated from his threats.  Proving that his threats are becoming more bark, and less bite.  Bond yields have quickly dropped back down from the lows seen last Wednesday.  As I suspected, the US economy is just not strong enough for bonds to really selloff and for 10 year yields to hit 5%.  I expect the next big down move to come from recession fears that are accompanied by yields going lower, not higher.  

After all the up and down last week, we're almost at the same spot as we were last Monday after the US credit downgrade.  Its been a tempest in a teapot, moving quickly up and down, but ending up back in the same place.  I expect more of these violent moves up and down in a SPX 200-250 point range, until the complacency builds up and the systematics are no longer in a low net equity position.  

Took a quick short last week and covered quickly, as I have little confidence in a big move lower yet.  The plan is to wait to put on a bigger short position as the weeks go by as we head closer to a more seasonally weak period for the markets(mid July to mid October), when the residual fears from April are further erased from traders' minds.  The exquisite short opportunity is still ahead of us, so I will not be rushing into any short positions.  Perhaps a little breakout above 6000 will get the CTAs long SPX again and induce latecomer bulls to buy the top.