Mr. Market won't make it easy for you

We've seen quite a rebound based purely on hope and Fed actions. Hope that we may be approaching the peak of COVID-19 in the US, hope that new therapies for treating the disease are effective and yet another Fed back stop of $2 trillion+ . The Johnny come lately bears I've mentioned last time have been moaning and complaining while getting their asses handed to them for shorting the rally. "The Fed is rigging the market! It's not fair!" This is the same bs I've been hearing for 12 years.  So, after missing the bulk of the crash in March and possibly getting burned playing for a long bounce, the bearishly inclined trading community has lost money again shorting the recent rebound. These trapped shorts now have the potential to provide underlying support and fuel for the market to go even higher before this rebound is over. In the very short term the bears might get thrown a bone as Trump opened his mouth again about the market's rise. Last time 2 times he did this the market pulled back. 

The bottom line though is that there is room for the rebound to continue or least chop sideways before the market makes a run for the lows again. With all the stimulus and Fed interventions that have been thrown at the market and hopes that the economy will re-open in a month or 2, it may stay afloat for time being as people may be willing to overlook the bad macro and earnings while bears keep getting squeezed. But eventually reality is going to take hold. The stock market is ultimately underpinned by fundamentals the main one being earnings which are going to be impaired for quite some time and so there's only so much short squeezing and greater fool buying will take you. I see a lot of market analogs out there comparing this decline to 2008 and 1929. I place little value in analogs as no 2 market cycles are alike. It could very well turn out to be the case that the market doesn't re-test or break the low until the fall of this year. If you look at the post 911 rebound in the market, you will see that it lasted for 5 months. By then enough bears had been wiped out and enough bulls sucked back in before the market rolled over again eventually breaking the 911 lows 9 months later. I have no idea if the market low will be re-rested 9 months from now or 9 days from now...my point is that a bear market rally can last months even when there's shitty fundamentals. For this to be a new bull market we must have not only seen the worst in the coming earnings collapse but that we're going to go back to how things were prior to when COVID-19 hit in short order once the economy is back up running again with no lasting cascading effects. That's quite a leap of faith to take.

Here's how I can see things could play out and I emphasize the word could.  In the next few months we're going to see the world economy gradually open up again. There's going to be a pent up demand boost in growth and warm fuzzy feelings of hope. As scientists around the world are searching for treatments, we may end up finding some effective ones. All of this could end up keeping the market afloat i.e. up to choppy sideways action. Then around mid-late summer the market is going to roll over again as we start to face reality and come to accept the permanent damage that has been done during this shutdown and the new post COVID-19 environment.  In the meantime, bears will be wiped out and bulls sucked back in. Sentiment indicators have plenty of room to unwind before hitting complacent levels. But like said earlier, we never did see the extremes in bearish sentiment that you find at bear market bottoms - they were only extreme enough for a bull market correction bottom which makes me think that ultimately the market is going to test or break the lows.

As usual I will adjust as events unfold....and I suspect a lot of events will be unfolding!