Angry bears reminds me of 2009

Here we are at SPX 3000....and the trading community is angry. The trading community it seems has been on the wrong side of the market for better part of 2 months. Whining and complaining that the market is not doing what it "should be" or that it's "rigged by the fed" is all I see. I got to tell you, this is not unlike what I was sensing in 2009 as the market began a new bull market at  a time when the economic data was still horrible.  If you're one of these whiners it's time to stop this destructive behavior. It's not going to get you anywhere. First of all, if you truly believe the market is "rigged" why the fuck are you shorting it?  Think about how fucking idiotic that is. That would be the same as finding out that a boxing match is going to be rigged but you bet on the guy who is going to lose because he "deserves to win"".  YOU PLAY TO MAKE MONEY. That is the bottom line. If you actually really believe the market is rigged to go up, then you should be thanking the Fed for making it so easy to make money! But the bearish trading community won't do it because they are either too stupid or too stubborn. They refuse to go long and when they do, they are weak and get stopped out on just minor weakness.

By the way, I don't believe in this fed rigging, I'm just saying that if you do, why the fuck would you ever go short or stay in cash? You should be going all in long and have an autographed picture of Jay Powell hanging in your office. It seems to me that once people get a taste of the bearish koolaid they get brainwashed and closed minded, unwilling or unable to explore any positive points of view. This happened to me in the crash of 2000. Luckily I was able to snap out of it in time. If you got burned by the market as a "bull" don't be bitter about it. Learn from it.

Back in 2009, the market had a strong recovery despite the economy and job market still being in the shitter. Ultimately, growth and jobs returned and so the market did in fact anticipate the recovery. So, did the bearish trading community admit defeat? Nope.The narrative changed from "it's just fed liquidity rally" to "there's another shoe to drop, we'll get a double dip recession". When that didn't happen it became "we're just kicking the can, this will all end badly" and then it eventually changed to "valuations are so high" which becomes the default bear narrative when the economy is going well and stock markets are making new all time highs.  A major concern out there is the "2nd wave" which is equivalent to the next show to drop narrative...this is where we are in the sentiment cycle.

In the short term, I'm not going to chase the market. It's simply too extended regardless if it's a bull market or bear market.  However, it's becoming clearer to me that this rally that began in March can still have legs because there's a bedrock of ingrained bearish sentiment that's not going to  lift easily. If you're waiting for more certainty, i.e. a cure, jobs to come back, ect. it's going to come at a cost i.e. much higher prices.

You would have to think that there's going to be at least one more "scare" in the market during the next few months. So long as the current bearish sentiment underpinning is still in place, that scare should not be a  devastating blow to the market (i.e. no retest of low)  and therefore such weakness could be bought....we'll see.

Whipsaw city in a still high headline risk environment

There's a certain trader I follow (who shall not be named) who writes a column on a financial markets website. Throughout the years he's served as a great proxy as to how the typical trader was feeling. Throughout most of the bull market of 2009-2019 he was a serial bear at heart. He was a reluctant long always looking over his shoulder for the bear to return as he was quick to head for the exits at any hint of a correction while taking quite a long time to embrace the ensuing rallies. I would have to say that this behavior is what characterized the bull market for the most part. It was as I would call it, the most hated bull market of all time. Then I would say around November- December I noticed this trader notably changed his tone. He became notably more bullish with his "trend is your friend" ,"bears are wrong" narrative. When the crash in March happened, he basically reverted back to his bearish mindset, but has been flipping to bull or bear  anytime the market appears to be on the verge of breakout or breakdown respectively getting whipsawed repeatedly. Just last week he was talking about "the next leg of  the bear market" after the 2 day decline and today it's "forget about the index just focus on your individual stock holdings". It's OK to be a flip flop.  Everyone get's it wrong and you should never have a loyalty to either the bull or bear side and be quick to change your mind if warranted but this guy is just simply deferring to the day to day moves in the market whereby headline noise/emotional behavior often dominates.  Like today for instance. If you trade/invest that way, you're going to get whipsawed more often than not as you'll be a weak holder. You got to have a certain level of conviction.

Market is up strongly today as there's supposed good news about a potential vaccine from Moderna and also oil prices are firmly positive. Great. We also had similar news back in mid April regarding Remdesiver which caused a big market pop that got totally undone a few days later. As the market breaks out here, it's causing more weak longs to enter and more bears to get torched for the umpteenth time.

 As I type this the put/call ratio is quite low. Based upon all that I posted last time, it would now appear that we are in a position to either see a false upside breakout or the final blow-off  rally from the March low which is going to truly and utterly destroy any remaining bears, while simultaneously sucking in sidelined longs who just will not be able to take missing out anymore. If the latter happens I expect to see the SPX close firmly above 3000.

But let me just say that this market action is not healthy in the sense that it doesn't resemble the action you typicaly see in sustainable bull market. In a real, sustainable bull market advance,  volatility is low and the market climbs in a slow but steady, relentless fashion punctuated by sharp but short lived corrections. What we are seeing now is a highly volatile, whipsaw  headline driven market that's had an upward bias because of the ingrained, overly bearish positioned traders which for now have outweighed the greedy behavior being shown by millennial momo traders of Robin Hood and others.  Yes, the market is forward looking and things will improve as the economy opens up but it's only natural to improve on the margin from such depressed levels as there is  pent up demand.  I've speculated before that we might end up seeing the true downside of the market sometime in the late summer or fall after the pent up economic bounce runs its course and we start getting a true sense of what the post lock down economy looks like in the coming year or 2. There's also a looming wave of bankruptcies that are in the pipeline. There has to be.

For now I'm being pragmatic. Until there is a clean set up, I'm  not going to get overly excited or get FOMO when the market goes up or all doom and gloom when it goes down especially when I sense the SOB permabear types doing victory laps and getting orgasms.

Mixed signals

Market pulled back early in the week which wasn't too surprising as I had noted the bear capitulation on Friday but the market did manage to recover partially by the week's end. Market has essentially gone sideways the past couple of weeks. So now what? Is this a consolidation or a top? It's a tough call because there's mixed signals. AAII sentiment once again showed bears outnumbering bulls 2:1. You usually see such readings near market lows. The funny thing about AAII sentiment is that it's been more bearish these past few weeks than it was near the March lows. You got NAIIM sentiment backing off from 78% long a couple weeks ago to 58% as of Thursday. The VIX is above 30, fund flows are still negative and my anecdotal measure of sentiment still indicating a decidedly lack of trust in this rally. All of this to me is not indicative of a top. But on the other hand, put/call ratios are starting to signal complacency and the speculative action in some of  the tech stocks du jour is not healthy which also indicates greed/complacency by retail trader types.  City Group's panic/euphoria model is in euphoria territory as well. This indicator has been money as of late and is not worth betting against. So, what I think could happen here is we get a false breakdown whereby it looks like the market is heading towards the lows but it won't get there. The reason being is that there's still too much underlying pessimism and although here was notable bear capitulation on Friday, they haven't changed their stripes. They are still miserable, bitter, SOBs who are itching to get short again. Any trader types who on Friday were saying " can't fight the fed" have quickly tucked tail and got shaken out by Wednesday morning no doubt. If you're going to play the long side with such weak conviction, you will lose. Better not to play at all.

The bottom line is that we're in a tricky spot here as I see conflicting signals at a time when the market is going sideways. I'm looking for the market to throw the bears a bone here before ultimately going back higher but this is not a high conviction call.

More on Buffett...Is Value due for a comeback?

I just read a scathing article on Buffett for which he was subject to criticism for the losses he took on the airlines, his refusal to buy anything in March and his lack of tech exposure. Many are essentially calling him a dinosaur, an old man who's lost his way. Let me tell you something...I remember hearing the same thing in 1999 during the tech mania as people were critical of Buffet's "old economy" stock picking. Ultimately Buffet was vindicated. In 1999 just like now,  large cap growth, tech in particular,  was trouncing value in parabolic fashion. When the tech bubble burst in 2000 it all reversed.  Value, small caps in particular, trounced growth for 7 years.  In 2007 the trend reverted back to growth over value and has been in place since, especially during the last 4 years. Since COVID, growth over value has gone parabolic placing us in a similar situation to 1999 right at the time when Buffet is getting slammed yet again.

Is history set to repeat? Are we close to the point where value starts to outperform growth in a big way?  We may very well be but I need to see evidence of a shift happening before making a move. I would like to see at least a 6 month period where value is outperforming growth and doing so in a stealth-like or scoffed at manner. In the past couple of years anytime value showed any hint of coming back to life there were plenty of bottom callers eager to claim the long awaited turn was upon us only to get egg on their face. I wouldn't want to see such behavior.

Notable bear capitulation on Friday...some thoughts on MMT

The US reported 20.5  Million Job losses which was the worst on record....and the Nasdaq closed up 1.6% and is green YTD making bears absolutely furious as yet again the market rallied on horrible news. This time I can sense the towel was thrown by a lot of bears on Friday.  "No point in fighting this when the Fed is buying everything". That's the typical, lame, loser response I see.  Not much different from what I heard in 2009 from bears who kept shorting all throughout the spring of that year. Put/call ratios have declined notably and along with the bear capitation it re-enforces what I said last week that the low hanging fruit of this rally is gone. There is however quite high bearishness still being shown by AAII sentiment. Bears outnumbered bulls by 2:1 on the last week and bears have been greater than bulls for about 2 months now. That's a solid bullish contrarian underpinning. Fund flows have also been negative the past 2 weeks which is also contrarian bullish. This seemingly conflicting picture in sentiment to me suggests that the market will either a) keep on grinding higher albeit at a slower pace or b) go through a consolidation phase with any dip not being greater than 5% unless we have a major shift in sentiment this coming week which may end being the case after Friday's market reaction.

One thing you can't do it chase this market. You don't go long after a move like Friday's no matter what. One of the troubling and frustrating aspects of this market advance is the gap up and go nature of it. That's indicative of emotional, short squeeze action which once runs its course can leave the market vulnerable to an air pocket/trap door downside move. The bulk of the moves in the market is happening after hours.

Although it's arguable as to what's driving the market advance, it not because of "Fed buying".  It's probably a combination of over-eager shorts/hedgers getting squeezed in combination with FOMO buying at a time when the market may be sensing at least a temporary revival of the economy. One thing that's not getting enough attention is the fact that those who are getting unemployment benefits in the US are getting the equivalent to an annualized salary of $51K. That's probably way more than what the average salary these unemployed people had when they were working! These juiced up benefits are going to stay in place until Aug 1. There's a ton of other fiscal responses by the US which on aggregate although not perfectly administered is quite large. And there's more fiscal responses coming. This might explain at least partially why the market has been able to do what it's been doing. It's the fiscal response not so much the monetary response. Any fiscal response adds to GDP. But will there not be a consequence to all this deficit spending or so called "money printing"? Maybe one day, but that one day could be well into the future and the market doesn't discount what's going to happen 5 years+ from now.  There are permabears who have been warning about the calamity of deficit spending since the 1980s. And what if turns out that there is no serious consequence to all this spending? Are you going to wait 10-15 years to find out or are you going to take a more practical approach?

There's an interesting theory out there that's getting more recognition as of late called Modern Monetary Theory (MMT) which basically suggests that countries that use a fiat based monetary system can engage in deficit spending indefinitely as they can simply print money to fund it. This money printing will only become inflationary when the economy is close to economic capacity which at that point too much money is chasing too little goods. MMT says that there's really no such thing as government debt in the sense that you and I view debt, as you and I don't have a printing press. Therefore, all the fear and doom and gloom of large government debts is misplaced. If they wanted to, the government could simply print the money to pay for any maturing debt, but instead the government simply refinances maturing debt with new debt and has been doing this indefinitely. Hence there is no need for our "grandkids" to pay for this debt. I don't agree with all the tenants of MMT but a lot of what they say makes sense and is worth looking into.

Buffet gives thumbs down to the market

He didn't say it outright, but from what I gathered from Buffet's commentary over the weekend he pretty much gave a thumbs down to the market. During his address to shareholders of Berkshire over the weekend, I'm sure there were many investors hoping to hear Buffett wax bullish on the markets and mention how the decline in March was an opportunity to - as the phrase coined by Buffett himself -   "be greedy when others are fearful". But that was not the case. In fact, Buffett was actually selling not buying. Specifically, he dumped his entire positions in airline stocks and claimed it was a mistake to have owned them. The funny thing is I remember Buffet saying for years how he hated airline stocks and for whatever reason this time around he decided to own them and obviously got burned.

 The $137 Billion cash war chest of Berkshire was not used to buy any "bargains" during the March rout because according to Buffett, there wasn't anything attractive enough. He also stated something that I'm surprised the financial media didn't latch onto. He more or less hinted that there's high risk of more shoes to drop when he mentioned Fannie and Fredie Mac going into conservatorship in early Sept 2008 was a sign of worse things to come (that wasn't actually the first big shoe to drop. For instance, the collapse of Bear Sterns happened in March 2008).  This is maybe why Buffet hasn't deployed that cash yet. It could very well be that Buffett expects to see more shoes to drop.  After all, were are still relatively early in this crisis when you think about it.

Buffet provided his usual "don't bet against America" spiel but actions speak louder than words. He's not buying America unlike when in October 16, 2008  he wrote on op-ed piece in the New York times titled "Buy America. I am". It should be noted that when he wrote that piece the SPX closed at 946 which meant it still declined another 30% from there before hitting bottom!


As far as the market goes in the short to medium term, I was calling for SPX 3000 a few weeks back and we almost got there Wednesday. The low hanging fruit from this rally has been picked in my opinion, but I'm not expecting the market to suddenly collapse just yet. The window is still open for SPX 3000, but sentiment conditions did deteriorate somewhat heading into Thursday right at the point when the market got ST overbought and so it was not to surprising to have seen this pullback. Let's see what happens from here. If the market can hold it together for the next day or 2 and not fall apart, the bears could very well shit the bed again and we'll indeed hit SPX 3000 at some point.