Shorting the Mechanism
Volume 166 - The Week Ahead
Two weeks ago, I laid out the case for a pullback. Last week we got it. I monetised the January put spread into the weakness and kept the March core-satellite hedge on, because the real problem wasn't the drawdown, it was the refusal to reset positioning. I'm not interested in being the hero who sells tops. My concern is Q1, where early PnL goes to die.
From the outside, it might look like the bull case is intact. From the inside it feels like the market is forcing a choice: give back gains to stay involved, or hedge discipline to keep them. And when participation carries a cost, it’s rarely complacency. It’s usually something worse.
We got the discomfort that I was looking for. We just didn’t get a reset. That’s why this spot is dangerous. The market tested belief, not positioning, and belief doesn’t pay anyone’s bills. If the bull market wants to continue, it needs to shake someone out first. The question is who. Because at the end of the day, you don’t need a blow-off top to end a melt-up; you just need to remove the marginal buyer. Last week felt like the first real attempt to do that.
What made last week interesting wasn’t the dip; it was how quickly the tape was forced to decide whether it still wanted to sponsor continuation. We got downside in the futures-only session, negative headlines, positioning pressure, and yet by the end of the week, the S&P closed flat, and the Nasdaq finished green. That wasn’t bullish in the way people assume; it was simply the market refusing to transfer ownership lower.
Bull markets do not die when bears attack, they die when bulls stop paying for the next leg. And the concern right now is that the price of admission is going up.