Strong market uptrends are usually driven by a bullish narrative that drives positive price action. The current market advance has been unusual because there is so much skepticism about the bullish theories, but the positioning was so poor that it helped to create substantial strength that left many folks underinvested and suffering from fear of missing out.
There is a bullish narrative that is used to justify this strength. That narrative is that inflation is easing, as is evident in oil prices, but the labor market indicates that the economy is still very robust and a recession can be avoided. This will allow the Fed to pivot away from its hawkish approach sooner rather than later.
That is the bullish narrative that has taken hold and is causing panic buying among bears and underinvested bulls. To some degree, the positive price action is adding weight to the bullish narrative rather than the other way around.
This is a Goldilocks scenario, with economic growth cool enough to help cut inflation but hot enough to prevent a recession. The market has been ignoring any data or evidence that contradicts that story right now. Even bonds that have weakened as interest rates have risen and are overlooked as equities parade higher.
The great likelihood is that we are going to see some data or news that is going to call into question the Goldilocks scenario, and that is what will produce the next wave of corrective action. It is impossible to time when that will occur, but the more overbought technical conditions become, the more likely that news flow is going to trigger a drop.
This is a very tough market juncture to navigate right now. The market is making the Goldilocks scenario self-fulfilling, and there isn't any data right now to call it into question. Combine that with poor positioning and skepticism and we have a recipe for sustained upside.
I continue to reduce positions into strength, but I am still looking for entry points. The entry points are tough to find, so my cash levels keep rising. Until there are better chart formations, I will remain underinvested.