Quick follow up

The following chart pretty much captures why I have mixed feelings about 2026. It shows US financial conditions.  This indicator should be used as a contrarian indicator. As you can see, when conditions are very accommodative, i.e. above 1 for at least a few months, the markets were close to making a significant peak and conversely, when conditions were tight, i.e. below -1, the market was close to making a significant low. 

This is not a perfect indicator (no single indicator is).  It will not give advance warning to declines as a result of exogenous shocks like COVID and "Liberation day" because these are negative events that essentially came out of nowhere. It should also be noted that in 2014 when this indicator flashed red, the market still had a good year returning 14% with the largest correction being 8.5% . Then, in 2015 the SPX had a flat year with the largest correction being 12.5%. So, it would have been best to have ignored the warning in 2014. Currently, we are just below the 1 level after having touched it very briefly in October. This suggests the market is much closer to a top than a bottom but also that there's still room for the market to go higher  before reaching redline territory, although that shouldn't be taken as a given. This pretty much sums up my feelings of the market based upon my observations of several intermediate term sentiment indicators which is this: there is still room to run but we would be redlining should that happen without a correction of at least 5-10%. which would  then set us up for a even larger decline. 

News flash: The US has captured Maduro and made military strikes in Venezuela. Let's see how markets respond on Monday. 

Outlook 2026: I have mixed feelings

Since last post the market had a moderate dip, rebounded back to the highs and for the past 5 days has been dripping  lower. This is the time of the year when I look back and look ahead. It's been yet another  crazy year. If you told me that the SPX would finish up 17% in 2025 after the liberation day meltdown I would have said you must be smoking the really good stuff. Even the most bullish of  bulls must have been surprised by this. We came into 2025 with complacent conditions as I had pointed out at the time and it made me cautious.  But the liberation day meltdown created the sentiment reset that paved the way forward to allow for the market to recover and soar to new highs the way it did. We went from Trump euphoria to Trump deep pessimism by mid April 2025. Sentiment has now however shifted back towards complacency...not euphoria, but complacency. Let's examine why. 

Wallstreet's average SPX year end targets for 2023 and 2024 were for gains of 5% and 2% respectively. It would  be far better to have this type of low expectation than what we have now given the average 2026 year end target of about 7600 which implies a 11% gain from here. That's not what you would call  wall of worry conditions especially coming off the back of 3 consecutive years of strong returns. Optimism is mainly centered around  rate cuts, AI adaption, and earnings growth beyond the Mag 7. Coming into 2025 we saw similar optimism from strategists with rosy year end price targets centered on bullish implications of Trump's tax cuts and de-regulation. By April the optimism towards Trump turned to deep pessimism thanks to Trump's threat of punitive tariffs and year end price targes were aggressively slashed. The lower expectations provided the necessary rebuilding of the wall of worry for the bull market to resume. It would appear that we need to see a similar rebuilding of the wall of the worry at some point in 2026 which implies a significant correction would be required. In 2025 it required a 20% decline to rebuild the wall.  That doesn't necessarily mean another 20% drop is required again this time.... it would be quite rare to see 2 consecutive years of 20% drop..., but if we don't get much of a correction in the coming months and the market instead just simply keeps going higher we would then see the market go from complacency to euphoria setting us up for an even bigger decline. Aside from rosy price targets, here's other evidence showing we have a complacent/overheated market.

Despite the bearish implications of the above charts which warrant at least a 5-10% correction, we have not yet seen the euphoric conditions that mark a major bull market peak . One classic sign of that would be a flood of IPO activity centered on AI. It seems unlikely that the so called bubble in AI is going to imminently burst without major flood of IPO activity which has not occurred as of yet.  Open AI is slated to IPO in 2nd half of 2026 at the earliest and so I'm looking at that event as to when the AI peak would be immanent. Obviously, there's no guarantee of that. Here's some other charts which suggest the bull market, albeit overextended, still has legs.

Bottom line for me is that current market conditions are not favorable in the short to intermediate term. Sure, markets can keep marching higher from here and possibly enter a blow-off phase which would be lucrative to capture , but when there's no wall of worry to climb it becomes a question of when, not if, the market hits a major air pocket and gives back all the gains and then some. It would appear to me that the market is in need of a reset.  Despite my concerns, it would appear that longer term the market still has a ways to go before hitting a secular peak. Just look at that last chart I posted which is consumer confidence. It would be inconceivable to see a secular bull market peak with confidence near record lows, benign IPO activity., and more favorable monetary conditions forthcoming. Let's see how it goes...

Bubble talk and warning shots

I've been noticing a lot of handwringing again on twitter and elsewhere about how the market is overvalued, about how there is an AI bubble. A few days ago we had CEOs from MS, Goldman and JPM echo such warnings.  The reflexive contrarian response to this would be that this is evidence of a wall of worry for the market to climb higher still. Well, it's not always that simple. It could be that these worries are justified but early. Despite the bullish contrarian implication of the cautious narratives out there, there are pockets of excessive bullish positioning as well as poor market breadth which suggests the market may indeed be vulnerable to a correction and perhaps a sizeable one, but as mentioned, with all the hand wringing out there, perhaps the correction happens a litter later on as a watched pot doesn't boil so to speak.  Let's go over the evidence. 

I've mentioned how AAII sentiment has not been showing excessive bullishness in the weekly surveys but this contradicts how they are actually positioning themselves. According to the monthly allocation survey, AAII investors now have 70.5% allocated to equities. Anything above 70% is considered "excessive" territory. Now, a single month reading above 70% is not an automatic bull killer by any means; it may only suggest a correction is forthcoming as  was the case in the summer of 2024 which was the last time equity exposure hit 70%+ which first occurred  end of May, remaining at 70+ until end of July. Then, in early August the market had a sharp  correction due to a growth scare and the unwind of the Japanese carry trade. Prior to 2024, AAII equity exposure hit 70%+ at the end of March of 2021 and stayed above 70% for the remainder of the year....we all know what happened starting in 2022. Prior to 2022, equity allocation hit 70%+ for 3 straight months starting at the end of December in 2017 leading up to the 10% correction in late Feb 2018.  So, based on history, hitting 70%+ for the first time is indicative of late stage rally behavior precluding at least a significant correction  but it also suggests that the market may still have a bit more more time and room to go higher first before the major downside happens! If we go by history on this indicator alone, it suggests the likelihood of a  significant, 10%+ correction would be 2-3 months from now. Of course, you should not hang your hat on any single indicator, so let's look at some others. 

Sentimentrader posted a chart on twitter titled  "Titanic Syndrome and Hinderburg Omen"  which captures the weakness we've been seeing in the internals. As you can see, this had preceded some  nasty corrections.

Investor's Intelligence bull/ratio is a lobsided 4:1 which is quite excessive. This is in stark contrast to AAII bull/bear ratio which is neutral. It's quite odd how these 2 surveys are diverging so much like this...which one do you believe more? 

Despite the above mentioned warning signs, there are still plenty of good reasons to believe that despite what appears to be a forthcoming correction, it wouldn't signal the end of the bull market because longer-term sentiment isn't excessively bullish enough. I've mentioned the BofA bull/bear indicator many times already, so here's another 2 charts which gives the same message

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You can see that positioning is bullish not stretched and if we did see a significant correction, it would probably reset positioning to  bearish quickly. 

Let's talk about this "AI is in a bubble narrative" again. The fact that you are hearing this everywhere to me indicates that it's either not a bubble or if it is, this call is early. As I said earlier, this doesn't mean that there's no froth out there or strong warning signs of at least a correction....there is....but to me it says that if we get one, no matter how bad it looks, somehow, someway it will not be the end of the bull market because we've haven't seen the narratives which embrace an optimistic outlook,  which embraces AI fully - not half ass like now where it's pretty much a 50-50 split of optimists and pessimists.  We've also have not seen a flurry of AI IPOs including the big kahuna Open AI which apparently won't happen until second half of 2026 at the earliest. Again, I'm not saying there's no signs of overheating in AI or the markets in general, but we are far from the euphoria of the dot com bubble. Back then, the giddiness was palpable and you could hardly find anyone who was bearish. 

For a major top you need the market to be fully embraced

So, I left off by saying wake me up when September ends...well I'm awake now! I was ST cautious, LT bullish when I last posted. My ST caution call did not pan out, but hear me out. First of all, when it comes to the ST, conditions can change very quickly which they did and I'm not necessarily going to make a post when that happens as I typically don't post very often.  Also, making ST calls is often a crap shoot anyways as randomness plays a big factor. I've always stated that and I've always said to place your focus on longer term conditions.  Not making excuses, just tell it as it is.  When the market had just the slightest of dips in mid August, many of the ST indicators got reset as folks ran for cover which placed the market back into a favorable ST condition. For instance AAII sentiment showed more bears than bulls in early  August and it stayed that way until mid Sept even as the market rallied. Such stubborn negative sentiment almost always means any dips will be shallow or non-existent. In the last 3 weeks the bull/bear ratio has risen to 1:1 which is only a grudged shift in bullishness.  It's highly unlikely the market will be close to a major top until you see a custer of readings where bulls outnumber bears by at least 1.5:1.  Another group of folks that continue to be reluctant to embrace the market continues to be hedge funds. The 2 hedge fund positioning components of the BofA bull bear indicator continue to show we are nowhere close to seeing exuberance. Benign readings like this simply don't happen near major tops.   

Yes, of course corrections can still happen when sentiment is not in an "all in" bullish condition but more often than not, it doesn't pay to get paralyzed by the ST and not make a move on a long trade you are considering assuming you have a longer term horizon (at least 1 year) and won't shit the bed if you do get caught in a correction.  But you do you. 

I see a lot of angst on fintwit about high valuations. Yup, they are high but that's not necessarily actionable. Why are valuations high and can it be sustained is what you should be asking. High valuations in the market are attributed to the MAG 7. With the exception of Tesla these are monopolistic-like type companies that have been able to sustain high margins and significant free cashflow and now with a benign interest rate environment, it further underpins the valuation of these cashflows. Yes, the fundamentals of these companies can change but until they do the "high valuation" argument will not hold water until there is an almost universal embracing of these companies which  would then make them vulnerable to just the slightest of missteps or some negative macro issue. Of course you will find plenty of people bullish and long the Mag 7. but is there room for even more bullishness? I believe so yes. Again, just look at hedge fund positioning. 

I want to take a step back for a moment. We've been in a secular bull market since 2009. Since then we've had 5 major corrections/mini-bear markets of 20%+.  Just prior to all of these corrections you had  complacent conditions (except for perhaps the 2011 decline) from multiple sentiment indicators and anecdotally via the popular narrative at the time.  The corrections that ensued ended up resetting sentiment back to skepticism/pessimism  which has been the default condition since the GFC. This resetting of sentiment allowed the secular bull market to resume. It didn't matter what the cause of the correction was or what the fundamentals or politics  were...so long as we got the sentiment reset, the bull market was able to resume and hit new heights until we got to the condition again where sentiment became complacent/chronically bullish. Coming into the year I was bearish because of the complacent sentiment condition of the market which was underpinned by the election of Trump. Ironically, it was because of Trump that we ended up getting a 20% decline instead, because of  "Liberation Day". This resulted in the opposite condition where sentiment became quite negative because of Trump.  Could it have gotten even more negative with the market tanking even more than 20% if certain things had happened? Of course, but once you get this type of negative sentiment condition, it becomes a question of when, not if, the market will hit bottom and the bull market will resume. This has been how things have played out since 2009. If you just simply ignored whatever the "fundamentals" are put all your faith in monitoring what other people are doing/feeling and went against them at the extremes you would do quite well. Of course, it's difficult to do this as emotions can get in the way and there's an art to doing this for there is no way to know for sure just how extreme an extreme can get!

Even when we hit those major tops which led to a 20%+ declines, we never got to the point where there was widespread optimism from not just investors but folks in general. I'm talking about the late 90's type optimism. I'm thinking that at the ultimate, secular bull market top, we will see this type of optimism....seems like that's impossible to ever happen given all the angst and division that is out there. 

Wake me up when September ends

 It's been a while. I've had a busy summer including going away for a trip to Eastern Europe. What a difference in scene. Such beautiful architecture and a cool vibe. I visited Berlin, Prague, Vienna and Budapest. One thing I've noticed with all is how you don't see many overweight people unlike here in North America whereby about 50% of people are overweight from my anecdotical perspective. I also learned about the sad history of this region, in particular, WW2 and its aftermath.  I digress.

So, since my last post the market took only a modest breather and simply grinded on as is the hallmark of a bull market. It turned out that tariffs weren’t as bad as expected as rates which were applied were either less than feared, more selective or delayed. As a result, markets climbed the proverbial wall of worry. Although there’s been a sense of relief, there’s still angst towards Trump and tariffs. This suggests the wall of worry is in tact which is good news for bulls longer term. Shorter term, there are signs the market is overheated. I meant to make this post just prior to when the market had a notable dip on Friday as the first 2 charts are dated 1-2 weeks ago.  What the indicators are telling me is that there's evidence to be cautious ST  but that there's still plenty in the tank for the bull market more longer term. Experience has taught me that in such a situation, it is best to pay more attention to the latter and not get handcuffed by the former as any downside would likely be limited. You know I hate chasing the market and I still do but under current conditions, if you did and the market went south,  you would very likely get bailed out without suffering too much pain so long as you are patient. Lots of investors and probably most ST trader types can't do that however.  

Here are charts that show how the market is ST overheated (note they were as of late July)

Others things to note: fear/greed index hit extreme greed territory about a month ago and lingered around there for a couple weeks. This is not necessarily fatal for a bull run, but indicative of ST overheating. Other things to note are pockets of froth in the crypto and penny stock space. This would also suggest caution in the near term, but the euphoria/recklessness is not broad-based enough to warrant a more serious concern.

Now for some charts which show that we haven't hit the sort of extremes which happen prior to major corrections or bear markets: 

This chart measures Risk Appetite. It has been on the rise but not yet at LT extremes that have marked major corrections/bear markets.  

Next is the BofA bull/bear indictor. Again, elevated but not at extremes. More importantly, if you look at the positioning components of this indicator, i.e hedge funds and LO funds, they are still depressed and what you typically see just starting to come out of a major market low! In fact, these positioning components have been depressed like this the entire run up since April. Positioning matters far more than technical indicators do as per the motto of this blog.  You may recall in a prior post where I mentioned that leading up to the 2021 peak there were a cluster of extreme bullish  positioning readings by hedge funds. Hedge fun positioning in recent months suggests we have a looong way to go before getting worried about the next bear market. 

So, bottom line is that there's good reason for ST caution but the bull market is likely to remain intact after any correction...a similar message I had in early May, however, I'm thinking that this time a corrective phase will be more severe and/or prolonged as there are more ST excesses this time. We are entering what is typically an unfavorable seasonal period. I'm not a big fan of seasonality but it certainty won't be doing the bulls any favors when you have ST conditions like this. 

Notice that I haven't made any mentions of the narratives du jour. If you take a look back and just focused on the indicators and market action while paying no attention to narratives or personal biases, just imagine how much better you would preform. I include myself when I say "you".  When I refer to "market action", I'm not referring to whether the market is going up or down but the way it is going up or down. For example, bull markets tend to behave in a certain way:  small but relentless advances, punctuated by sharp but short lived corrections. Sometimes the correction phase in a bull market can last for a few months like what we saw in the summer of 2023.  

But of course, I can't help to indulge in the narratives. Last Friday jobs numbers were weak and the prior 2 months were revised sharply lower which caused Mr. Orange to fire the BLS commissioner. Lol. Can't say I'm surprised. Now there's high expectations of a rate cut in September. Trump is also set to name Powel's successor who will very likely be another one of his yes men. So, it's quite possible that the market starts to get concerned over slowing growth over the next few months, but offsetting this is the greater possibility of rate cuts. Rate cuts in a slowing, but still growing economy is bullish, while rate cuts in an economy heading towards recession is not. We shall see how the narratives play our, but as I stated, defer to the indicators. If I had to guess, we will see the market trend down/flat until the end of September.....wake me up then. 

Reflection

This is mostly going to be a personal post, but first some market comments. Since my last post, there was only a slight pullback before major news was announced which was that Bessent was able to negotiate a "trade deal" with China. It's really just a temporary de-escalation for 90 days such that Chinese tariffs will be reduced to 30%. This was enough relief to result in the market to pop 3% the following day and we've added to those gains a bit more. On Friday night, Moodys downgraded US debt a notch to Aa1. They are the 3rd agency to do so since 2011. I won't get into this for now except for saying this, which I have said before...These rating agencies all had AAA ratings on subprime MBS just prior to the the GFC and since they were made to look like fools, they became tough guys to try and salvage their reputation.  So far, the market reaction has been ho-hum. In General, the market is even more so in an ST overbought condition, but the sentiment reset I pointed out a few weeks back is still firmly in place. That along with how the market has been relentlessly rising strongly suggests this is a bull market rally, not a bear market rally. however, I do suspect that 3% "Bessent gap" will get filled at some point this year. I wouldn't be chasing the market here.

I recently turned 48 and I've been reflecting on my life and certain things that have been happening recently. I must say that I am blessed. Lucky and blessed....perhaps they mean the same thing. I know I mentioned the following before. There have been multiple times in my life where I was severely off track both from a personal and financial perspective. There were several years in which I felt I was in a huge hole...holes that I put myself into for the most part for one reason or another such as being timid and shy, being too laid back without having any goals or a sense of urgency and lastly overconfidence which led to recklessness. Thanks to some luck and lots of resiliency I managed to get back on track for life.  Through the dark times I never had a "woe is me" attitude, I never embraced negative narratives,  I kept it together, I fought. What else can you do but fight is the attitude I always had when faced with a defeat or setback. I would never mope and feel sorry for myself. I never resorted to alcohol or drugs to cope, nor did I ever consider doing so. Instead,  I would do intense cardio. That was my drug. 

At 48 I have a family, a house that's paid off, a great job with significant prospects for growth and I'm in great health. My greatest achievement is my daughter who is beautiful on the inside and out. She is so precious to me which makes me feel so vulnerable. I would kill or be killed for her.  Now and then I can't help but feel a wave of anxiety. What if something happens that takes away any part of this good situation I find myself in? Part of this is imposter syndrome as a result of all the setbacks I experienced and part of this is due to recent bad things that have happened to clients, friends and family. In the past 2 years, numerous people I know have either unexpectedly died or fell seriously ill. I'm a logical person, a positive person, but I can't help but get a bit rattled by this, thinking what if I or someone in my immediate family are next? I have this one client, a sweet Italian lady who recently lost her adult child to cancer. He was my age. This is now the 3rd child this lady has lost in last 10 years. Yes, 3rd child. What do you say to someone in this situation? It's beyond horrible, beyond devastating. You want to talk about having bad luck? Woe is me? Fuck your bad luck. This is what bad luck really looks like. Me on the other hand, I feel almost guilty for the amount of good luck I've had over the years. 13 years ago my mom almost died of a brain aneurysm. She was only 56. There is a 50% chance of survival and if you survive, only a 34% chance that you won't have some sort of permanent brain damage. Therefore,  you have only a 17% chance of surviving a brain aneurysm without brain damage. My mom beat the odds. Aside from her not be able to recall a few minor memories in her past, she is totally in tact. How lucky was she? How lucky was I and my family? That experience really put things into perspective and made me realize the importance of not worrying about the small stuff, of appreciating the things that are really important to you, knowing that it can be taken away in an instant without warning. Recent events have reinforced this. I don't think I'm as resilient as I once was because things have been going so well and it's made me kind of soft. Also, I feel like I have more to lose now.  In 2022 when markets were rough, I had some sleepless nights. Even though my clients held up relatively well and weren't in a panic, I couldn't help feeling vulnerable. I couldn't help feeling that the career I had been building for the prior 5 years was going to fall apart and crumble through my fingers putting me back to square 1 like so many other times and unlike in the past when I've had major career setbacks, I don't have the time to recover anymore. Being young was something I knew I had in my back pocket when things weren't going well. "I got time to turn it around" was something I would say to myself. I don't have nearly as much time now if I fuck things up or if things go majorly south for some reason. Don't fuck it up. I something I tell myself repeatedly.  Obviously, I can't control the markets and must accept that bad shit, i.e. big drawdowns, are going to happen. I just have to ensure the smoothest ride for my clients given the risk they are willing to take, making tactical moves when warranted and be proactive by calling clients during bad markets to hold their hand through it. I did do this in 2020, 2022 and just recently. Lucky for me (yet again) my clients are easy to manage as for the most part they are financially secure, always take my advice and don't have a propensity to want to panic during bad markets.  I'm the one who is supposed to have the cool head during bad markets but it's hard not to get rattled to at least some small degree. Having my emotions "hostage" to the markets to some degree is the worst part of my job. This is a big reason why I do this blog as it serves as an emotional release as well as a way to express the logical part of my brain. Overall, I love my job which I know must be quite enviable. I'm making good money with lots of growth prospects, I get to work wherever I want, whenever I want and with whomever I want. In January I fired a client for the fist time as he is a moody prick who always finds something to complain about.  He was a large client too. I didn't give a fuck, because one thing I don't tolerate is having a relationship with a toxic or negative person.  I think this guy actually has bipolar disorder....not my problem anymore.  

Now I'm going to discuss some things that I'm wrestling with. Although I'm 48 I certainty do not look or feel it. Most people who meet for the first time think I'm in my early 30s and that's how I think and feel too. I keep myself in good shape. I can still keep up with guys far younger than me when I play soccer. I have cheated father time to some degree but the problem I'm going to have to face is that at some point father time will catch up to me.  Will I be able to make the transition from a young man to old man? It's really hard for me to accept that. There is this guy by the name of Bryan Johnson, also 48 this year,  who made millions as a tech entrepreneur. In recent years he has dedicated his life to taking extreme measures to ensure he lives as long as possible because he feels that within his lifetime, it's likely we will have the ability to become immortal as we find a breakthrough to slow down or stop the aging of cells and/or merge with machines. And so according to Bryan, it's absolutely critical to do whatever you can to don't die so that you make it this point of "longevity escape velocity" as he calls it.  Even before I knew of Bryan Johnson I often pondered the possibility that given the rapid pace of technological advancements, we may find a way to live forever. Can you imagine if that were to happen? I'm not holding my breath for that but I don't think this is a pipedream.  

For anyone reading this. if things haven't gone your way, my message to you is to continue to fight no matter what.  This doesn't apply to achieving things that are ridiculously unrealistic but for everything else, you have to keep fighting until the bitter end, no matter how many times you've failed. No matter what. Don't be negative even when things appear grim. Being negative does you no fucking good. Not one fucking thing. It will only harm you, holding you back while making you a miserable fuck. I've mentioned about how luck was a big part of my success, but I will say this....I would not have been in a position to get some of the luck I experienced if I was a negative, miserable fuck when I was down and out. If you're in a shitty spot, do whatever you can that's in your control to make your situation better, even with the smallest little things.  Fight right until the bitter end and if it still didn't work out at least you know you give it your all and not have to look back thinking I could have done this,  I should have done that. That would be an agonizing existence. I already feel some of that agony when I look back at things I should of done or said. It still hurts. But I try not to dwell on the past for too long. You can't go back you can only go forward. Just don't realize this when it's far too late. 

Strong rebound....so far so good but ST overbought now

My previous post pretty much pinpointed the exact point when the market staged a massive rebound. Basically, Trump is showing his willingness to water down his tariff threats. For example, he provided  carve outs for semi-conductors and electronics and he exempted auto tariffs for Canada and Mexico so long as they comply with the USMCA. He was privately approached by the CEOs of Walmart and Target who warned him of empty shelves and rising prices in the months ahead if he follows through with this threats. No doubt other big CEOs have gotten into this ear. Therefore, there's probably some hope or expectation that any tariffs imposed will be more gently administered to allow for companies to adjust. 

The market has now recovered all the losses post liberation day which is quite impressive. In my previous post I said to look at market action to determine whether a rally appears to be bear market rally or the start of a new bull phase. So far, it appears to the latter due to the relentless nature of it. Meanwhile positioning/sentiment is overall still firmly skeptical. AAII sentiment in particular has exhibited a persistent amount of high bearishness that is only comparable to the depths of bear market lows. Many correctly point out to see what these folks are actually doing with the money vs what they are feeling. They have indeed been pulling back their equity exposure, which is currently at 64%. This is not the same degree as the GFC but it comparable to the 2022 bear market.  Near the market peak, at end of December, equity exposure was 70%, likewise,  it was 70.5% end of December 2021 which was also the market peak. By end of October 2022 exposure declined to 61%. The currently allocation of 64% is obviously close to 61% but not there yet, but it could get there even if the market continues to rise or just holds as these folks may be inclined to sell into strength. Given the persistent high level of bearish sentiment, it would appear that selling into strength would be a strong possibility.

I have a friend who approves online trades for TD customers. He told me that during the liberation day meltdown he said the rush into money market funds was the most he had ever seen. Barrons conducted a survey of  money managers at end of March/early April which showed bearishness at at 30 year high... this was prior to the liberation day meltdown!  

BofA bull market indicator has had a notable reset

This indicator has been whacky as of late, not being in sync with other indicators. Keep in mind this is a global sentiment, not the US although these markets are usually highly correlated. Note the very low positioning of hedge funds. Hedge funds in particular, have been big sellers during this latest rout. 

The latest surge in the market has rendered it ST overbought, but that what you typically see when you get a bullish thrust from a correction or bear market bottom. A rare Zweig Breadth Thrust was triggered recently, which has strong bullish implications for the next 6 and 12 months. In fact, it has a perfect record for these times frames. 

I've seen some people on twitter debating whether this signal was actually triggered, but I saw a similar study from sentimentrader which gave the same message and so I am going to conclude the signal is valid. Of course, there's not guarantee that any signal is going to work this time and it does not preclude the possibility of significant weakness in the short term. 

I can certainly understand how one can be quite skeptical of any bullish signals.  After all, it appears almost certain that there's going to be significant economic weakness for the next  quarter or 2 given the collapse in container shipments and reigning in of capital spending as a result of the tariff turmoil. But this is widely known information isn't it? So, is the market in denial or could it be already looking across the valley to a more sanguine environment? Here's how the latter could transpire: Trump makes  "deals" or at least provides a framework which suggests tariffs aren't as bad a initially feared. Another possibility is that imposed tariffs either get bypassed or uncollected to a significant degree. The proper collection of tariffs is something that is not getting any attention. How are understaffed customs agents going to properly enforce the enormous amount of tariffed goods, many of which could have complicated tariff rates/rules applied to them?  Ultimately, the bullish resolution could be that somehow, some way the tariff threats turn out less than feared. It obviously takes a leap of faith to believe in such a narrative and the path to this narrative could very well have twists and turns, but here's the thing....if you wait for things to turn rosey again before deciding to buy you will probably end up doing so at all time highs. I said the same thing a few times from late 2022 to early 2023. You have to pay up for certainty. Back then the fear was that rate hikes were surely going to cause a recession. Now, the narrative is that tariffs are surely going to cause a recession. Then, just like now, it was difficult to go against this negative view. 

As always, I will defer to the indicators and market action and right now despite a ST overbought condition which is likely to result in some market weakness, it suggests to expect an optimistic resolution to all this turmoil somehow, someway at some point. It certainty doesn't feel that way (I certainty have strong doubts) but it rarely feels that way when there's a crisis of some sort. It requires a leap of faith.  I see lots of calls for a re-rest of the lows. While I expect there to be some ST weakness, I don't think we'll see a retest if the bull case ends up playing out....we'll just have to wait and see what happens.