All clear or bull trap?

Lots has happened since my last post, notably, Biden has won the election (apparently) and there's been 2 positive vaccine announcements. After the election results we saw the market rally in what is being labelled as a relief rally now that election uncertainty has been "alleviated".  Just prior to this election relief rally, noted permabull Tomas Lee from funstrat  tweeted (and I paraphrase) how the market will rally after we know the results of the election as an element of uncertainty would be removed. If you think about the logic of that tweet it's kind of silly. It implies that the market will rally no matter who's elected which therefore means the so called election uncertainty is a non-factor for the market and therefore the rally shouldn't have to wait for the winner to be announced. The market was indeed poised to rally no matter what. 

Last week Pfizer announced positive vaccine news and the market went up further still and after fizzling a bit, its having another strong move today after Moderna's positive vaccine news. Given what we know so far, all the vaccine news does appear to be promising and hopeful. Yes, we don't know how effective they actually will end up being, how many people will end up wanting to take it and when but you can't deny that this is good news. So, does this mean full stream ahead? All clear? Well, the problem is that this latest market flurry has rendered sentiment conditions to be the poorest I've seen in a long time. We have seen a massive spike in inflows, bullish sentiment and bullish positioning. Now, mind you it's not unusual to get this kind of strong bullish sentiment thrust at the onset of a sustained relief rally especially when for the past several months, these metrics have largely been bearish to neutral. I therefore won't be so quick to point this out as ominous as I see a lot of others doing but at the very least, this is not an ideal time to add to new positions, especially when these spikes in optimism are based on election results and vaccine hopes which have no economic substance at this point and won't have any for several months to which we can't quantify just yet. I'm not so quick to jump upon the all clear just yet. A bull trap would appear more likely than the all clear. 

The market is all about expectations. So, now that the vaccine cat is out of the bag, what is going to propel this market further? I suspect it would have to come from improving economic data and/or an announced stimulus package. The former seems unlikely but I think it's simply a matter of when, not if a stimulus package will be forthcoming given the massive spikes in covid cases around the world but will we get some sort of negative catalyst first? The market would appear to be ripe for at least a pullback. When I ask myself the question is it scary to put on a bearish trade here, the answer is yes. That's usually a good sign to do so. 

In the next post I'll address the value vs growth rotation that is happening.