A popular investment conference in Las Vegas wrapped up Thursday. It was a well-attended event in regard to both speakers and attendees. However, we noticed an overwhelming bearish theme. Virtually nobody is looking for the stock market to appreciate in 2023; instead, there were unrelenting discussions of the upcoming recession and how to protect portfolios from the downfall.
While these views are certainly valid, we cringe when everyone has the same expectations.
It reminds me of last year around this time. A similar event was swarming with ideas on how to capitalize on the new commodity bull market. At the time, crude oil was near $125.00, natural gas was closer to $10.00 than $20.00, corn was flirting with $8.00, and wheat was wildly over $10.00. A quick look at the board today is sobering.
The last half of 2022 and the first part of 2023 can be best described as a commodity bear market -- the exact opposite of what the majority were predicting a year ago. Could it be that the stock market surprises to the upside over the next 12 months for no other reason than, it is least expected and market participants are positioned for the opposite?
We think it is a real possibility.
'Sell in May and Go Away' Hasn't Worked for a Long Time
Summer seasonality has been shifting in recent years, but the once popular mantra 'Sell in May and go away,' no longer holds water. In fact, a more common pattern is a summer rally with weakness not coming until September!
Chart Source: MRCI
The E-mini S&P Understood the Assignment
I've witnessed few things more bullish than a successful retest of a breakout trendline. Not only did the S&P 500 hold the previous downtrend line resistance (now acting as support) but it proceeded to rally almost one hundred points afterward!
Chart Source: QST
We have been pointing out the massive speculative short position in the futures market and we suspect traders added to shorts Thursday in anticipation of an equity market meltdown.
When the market is positioned for lower prices and the opposite happens, pullbacks aren't signs of a selloff, they are the market reloading and accumulating more buying power.
This is a sign of normalization...we are not in 2022 anymore, Toto.