The buying rampage continued on Wednesday, as market players struggled to keep pace with some very frothy action. The Nasdaq 100 gained 3%, and the S&P 500 dumped about 1.78% on a three to one positive breadth.
Market pundits are searching for some positive news to explain the action, and they have concocted some positive narratives, but the primary thing that is diving into this action is poorly positioned investors, short squeeze pressure, and growing fear of missing out on a new bull market.
The primary explanation the bulls use to explain the strength is the theory that the worst has already been discounted and the market is looking ahead six months or so. It is an interesting theory, especially since the Fed has been ramping up its hawkishness and one Fed member said Wednesday that it is very unlikely that there will be any rate cuts in 2023.
The current action is not driven by fundamentals, valuation, or macro-economic considerations. It is a function of positioning and structural issues that are driven solely by price action.
The great difficulty of the market right now is that there is no way to know how much longer this frenzy may continue, but when it does end, it will be abrupt and will trap a lot of folks that arrive late at the party.
I reduced a large number of positions Wednesday into the strength and increased my cash position quite a bit. I feel quite comfortable that I will see some better entry points down the road and have no concern that the market will not let me in.
Have a good evening. I'll see you tomorrow.
