TACO = Complacency

They're talking about the TACO trade.  Looking in the rearview mirror.  Again.  Yes, Trump always chickens out.  But it's a red herring.  It assumes that this is a good stock market to invest in if Trump doesn't go through with his tariff threats.  That is a news-centric view of the market that ignores long term fundamentals, positioning, and recent investor flows.  

With the rise of the retail investor, market viewpoints have gotten more short term, less fundamental, and more news-driven.  The percentage of volume coming from retail is much higher now than it was even 10 years ago.  Its probably higher than it was even in 2000.  It breeds short term logic and causes kneejerk market reactions.  

Last week you saw Trump back off within days of the tariff threats he put on the EU.  It led to a huge gap up.  Then you had another monster gap up in the works after the Court of International Trade, whoever the hell they are, said that Trump's tariffs were illegal.  By the way, these judges are part of the swamp, as they will do anything to further corporate welfare, in order to boost the stock market.  Its irrelevant because Trump will chicken out anyway on the tariffs.  But still, it shows you how deeply entrenched corporate lobbyists are in all branches of government.  The market reaction to that kneejerk rocket higher in the overnight session was valuable information.  The market sold the news relentlessly, taking back all the gains in the regular market hours.  

The same thing happened to NVDA, as it gapped up much higher after better than expected earnings, only to see all the gains evaporate on Thursday and Friday.  The market is starting to feel heavy above 5900, as good news is not being followed by sustained strength.  Its quick moves higher that are now faded.  

It has lowered the bar for entering short positions in the coming weeks.  Still looking for that exquisite short opportunity if SPX breaks above 6000 and the paper napkin chartists get even more bullish, but it might not happen.  Early June is a bullish time of the year seasonally, and the systematic and CTA funds are still either short or have very low equity exposure.  But the discretionary funds and retail crowd are back to high equity positioning.  

The NAAIM sentiment survey shows institutional investors are back to being very bullish.  

The COT data showed large speculators adding to longs.  We are seeing signs of long saturation in the SPX price action.  There could be one last gasp rally in June due to systematics jumping on to the bull bus.  Or it could be that we've seen the top already for this move in the overnight market on that tariff ruling from the Court.   Hopefully we get that last gasp rally as that would set up a really great short entry for the big move lower that should happen in Q3.  

What was the most interesting part of the COT data last week was in the Treasuries.  Across the curve, small speculators added big size to their net long positions.  This is counter to the weakness that we've witnessed in May for the long end of the curve.  They are buying the dip heavily in Treasury futures.  Small speculators tend to be wrong so it does make me begin to question my thesis of economic/stock market weakness leading to Treasury market strength, especially in the long end of the curve.   In any case, its a bit of a bearish sign for bonds, and even for stocks.

2 Year T-Note Futures

10 year T-Note Futures

Ultra Treasury Bond Futures

On the sidelines but looking for a good spot to get short.  The bulls are on borrowed time here.  Retail investors are complacent and heavily invested in stocks, and the price action is getting heavier.  Institutions are a bit cautious, but still way above average net long positioning if you go back to a 20 year window.  Lots of economic data coming out in the next 10 days, it may help form a top if its better than expected and the cautious bulls finally get on board.