Don't bet on the downside.

The corona virus sell-off was short lived as I expected. If you're bearish because of this, you better think again because the market has now had enough time to digest and assimilate its impact to the economy and the verdict appears to be that it will not be material in the long run. Meanwhile bonds have rallied quite a bit since then. People are pointing out how the strength in bonds are signalling bearish omens for the stock market.. We heard this argument last year but it turned out to be false because strong bond action (i.e. lower yields) although often a signal of slowing growth in the economy can also be an indicator of rash pessimism which tends to coincide with good ST entry points for the stock market. Just take a look at look at previous times in recent years when bonds had a strong upside move...more often then not it was a point when the stock market was near a ST low.

Slow growth may indeed be what's happening but so long as growth doesn't turn to outright contraction leading to a financial crisis, strong bond action tends to be a positive contrarian indicator for the stock market. Same goes with the oil price. Lower oil prices have generally coincide with good times to buy stocks. Why? Because low oil prices generally associated with rising pessimism about the global economy which provides a contrarian buy signal. Also, low oil prices implies lower inflation pressures and that too is a good thing for stocks in general as it implies low interest rates for longer.

Take a look at history to see when major tops were formed....it took place when bonds were SELLING OFF significantly and oil prices were spiking which implies high optimism, high interest rates and high inflation pressures all of which are bad for the stock market.

The path of least resistance for the stock market appears to be higher for now or at the very least, sideways action. You simply don't get big collapses when conditions are the way the are. If I had a gun to my head I say we are going to see new all time highs sooner rather than later.