The market made a new all-time, but there was no follow through.

PRE-OPEN MARKET COMMENTS WEDNESDAY – The market deflected bearish news last week (CPI, PPI and Retail Sales) and it made a new all-time high yesterday. The volume was light and that is a sign that buyers are not that interested. There wasn’t any follow through and this move was generated by programs. There is some resistance, but sellers are not very aggressive either. Late in the day the market staged a big rally in the last ten minutes on good volume. I believe this was a gamma squeeze on 0DTE options (programs).

What does all of this mean? Buyers and sellers are in equilibrium and neither side is motivated. According to Bank of America, Asset Managers have not had this little cash since 2010. That means that they are “all in”. The upside firepower has been exhausted and there is no money on the sidelines to fuel a move higher. By the same token, there is not much left in the coffers to buy dips. When a pullback comes, everyone will be looking to reduce risk at the same time. The largest moves down come when no one is expecting them.

Why aren’t sellers more aggressive if the backdrop is deteriorating? They are waiting for concrete evidence that domestic economic conditions are deteriorating. To this point, the numbers have been a little soft, but not horrible. They are also comforted by the notion that the Fed has room to ease if we do see a slowdown. I would counter that argument by saying that inflation has been “hot” and the Fed will be reluctant to ease. With bond yields rising, Asset Managers do not want to shift into bonds so they are sticking with stocks. Earnings have been decent and companies have pricing power so they can somewhat keep up with inflation.

If the Fed plans to cut rates twice this year, why are yields rising? There are a few reasons. Inflation is starting to tick higher, but that evidence is just now starting to surface and bonds have been in a decline since September. I believe the true issue is that the US will have to refinance $9 trillion dollars of debt this year. Translation: The US Treasury is going to issue a shit ton of debt this year (unprecedented supply).

Who is going to buy our debt? Certainly not China (one of the largest debt holders). They have their own structural debt problems and they have been net sellers of US debt, not buyers. China’s holdings of US debt is at a 15-year low right now. When you need money, you sell what you have. Who is going to replace China as a buyer? I don’t have that answer and that’s one of the reasons I am bearish.

This afternoon we will get the FOMC Minutes. I am not expecting any fireworks. The news this week is light.

From a swing standpoint I am bearish. I don’t like stock valuations and I do not like the global economic backdrop. I am in cash and I am waiting for technical confirmation to short. It’s hard to be sidelined, but swing shorts would have lost money in the last month so this is the right place to be. Very short-term overnight swings are fine, but I would NOT enter trades that span more than a few days. I am not going to lose my focus by trying to squeeze the last few nickels out of this market rally. When the hurt comes I believe it will be fast and furious. Instead of scrambling to mitigate losses on longs I will be focused on entering swing short positions and adding to them.

I am day trading and there are good opportunities on both sides. Just make sure you enter well and try not to hold positions overnight. The first move of the day is often wimpy and I like fading that move.

Support and resistance are yesterday’s range.