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.
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