There isn’t a single 'smoking gun' headline catalyst that deserves all the blame for the last couple of days in the stock market. It appears to be more a death-by-a-thousand-cuts for weak-handed flats and shorts on stimulus cues, vaccine updates, and pent-up-demand signals to the upside that keep this rally going.
The first point is that if you think what we have seen in the market place is the result of pajama wearing, Netflix watching, bored sports gambling degenerate “stoolers” then it will be extremely difficult to support the idea that a two month uptrend is built on anything sophisticated. In that realm the reason for the uptrend is solidified in simplistic analysis. This type of simplistic analysis will lead and leave the “market experts” angry confused and befuddled. It leads to a logic that yields the notion that were teetering on the tight rope precipice of another historic nosedive.
Blaming amateur-hour for the market’s current state is stale and equally amateur in assessment. It’s far more likely to note that most people with significant experience in the markets are equally confused and looking for a way to make sense of everything. That sort of confusion will force an individual into tunneling, or tunnel vision, which ignores everything outside the tunnel which they analyze their own framework.
It seems far more likely to me that most people with significant experience in markets are confused and are searching for some way to make sense of this action that explains the movement while simultaneously preserving their foundational analytic frameworks and tools. And they are grasping at any data point that helps them resolve that cognitive dissonance.
Those that follow and subscribe know that for weeks I’ve echoed that the pain trade is higher. If not for any other reason than it being a pain trade, the pain trade was higher. I must say that the pain trade being higher doesn’t always yield an easy pain trade. In fact, the upward thrusts have been vicious on days when the rotation has targeted specific sectors and the gut checks in between have been steady.
Simultaneous to the “pain trade” I’ve echoed that I do not understand what will drive this higher. I say this to make light of the fact that it is more important to “trade what you see” rather than what you believe or think. Most people keep thinking that this is a ripened short of epic proportions. The problem with that is that most people think that. That’s just a funny way of saying in an age of algos, robots, passive investing, and pajama trading positioning matters just as much if not more than fundamentals and should be taken into account.
The past two days have been an example of what it will take to break this offsides positioning. The bears have worked and will work awfully hard to manifest the prophecy of a technical failure at the confluence zone of the 3000 level and 200-day MA levels, which are both in play here.
Typically the market works as a pricing mechanism to inflect as much damage/pain to as many people as possible. I don’t see how this time will be any different.
With all that said, we have been fond of Tony Dwyer’s term “Banks and Tanks” and have coined a few of our own as well.
Fly and Buy
Bricks to Clicks
Home and Health
Look for some of these themes to play out as sector rotation catches on until the Fed’s infinite punch bowl party runs dry. As always we are momentum traders and are simply looking for a quick fix. The fed’s BRR machine is your adequate “why” for the last five weeks.
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