The Market Might Do Something Stupid This Week
Between the Lines - Vol. 11
Good morning,
As I sat and watched some boring World Cup games over the weekend, I found myself thinking less about football and more about how tired I was. Honestly, it was one of those weeks where the market did not move enough to justify the emotional energy it zapped from me, and from a lot of you, I am sure.
The kind of tired where you have spent most of the week staring at red candles, rates, AI headlines, hyperscaler funding debates, levered ETF noise, oil headlines, Warsh takes and, of course, SpaceX.
And here is the funny part. SPX opened the week around 7440, traded down to ~7240, and closed at 7431. The prior week’s close was 7383. So, depending on where you anchor yourself, the market was either basically flat from Monday morning or modestly up for the week. Nothing happened. And yet everyone I spoke to felt like they had just played 120 minutes a man down. Which is the bit I could not get away from. Index didn’t have a bad week; people did. The market closed higher on the week, and somehow everyone went into the weekend tired or hedged, half bullish/half-traumatised. It was a good example of the parts of bull markets people don’t like.
Every small dip starts to feel like the big one. Every bounce feels untrustworthy. Every high feels stretched, while every dip feels like a trap, which is the part of bull markets nobody likes admitting: they do not feel like bull markets while you are in them. They feel like a sequence of almost-tops. The bull case is always more annoying than the intelligent bear case that comes with numbers, charts and a little bit of moral superiority.
The bull case is much more annoying. It usually sounds something like “yes, I know, but it is still going higher.” Which nobody wants to hear because it sounds too simple, unserious and that you are ignoring the risks. But the whole job in markets is not to pretend risks do not exist, but to work out which are already priced in, which are being over-discounted and which the market is absorbing in real time.
As I said in last week’s Between the Lines post, SpaceX’s IPO was a big deal.
It was a test of positioning and liquidity. Following the IPO, I think the bull market is still very much alive, and 8K remains the summer target.
I think this week, specifically, the market can do something stupid.
A new all-time high this week is not a heroic call. We are sitting less than two percent from the highs, vol has backed off, the market has already absorbed a huge supply event, the broadening trade is starting to work under the surface, oil has become a macro release valve, and the main bearish arguments are now so well circulated that I am not sure who is left to be surprised by them. But let’s remember, markets do not exist to make you sound sensible at dinner. They exist to embarrass the largest number of people in the shortest amount of time.
So please let me be precise about what I am actually saying, because this is where most people get the number wrong. Where we are sentiment, positioning and level wise… 8K is not a consensus summer forecast. It is what happens if new highs trigger underweight panic and if/when hedges get monetised. It’s poetic with Mag7 acting like a funding short right now, as when that cohort rallies, it’ll really add oxygen to the fire. We also need Warsh to not deliberately tighten financial conditions at his first press conference. If liquidity is bad enough to make upside travel the way downside travelled last week, we could see a 200-handle green week this week.
The mistake people make with 8K is treating it like a valuation target. It is not. A valuation target is where you sit down calmly, plug in earnings, margins, multiples, the discount rate, the terminal AI productivity assumption and whatever other nonsense makes the spreadsheet look good. A market-structure target is what happens when the price gets above a level where people have to react. The first two percent is the index getting back to the highs. The next three percent is the people who thought they had time realising they do not. The final stretch is where the options market, levered ETFs, underweight managers, short-covering, systematic buyers, retail and the “I’ll buy the next dip” crowd all discover that the next dip was last week and they missed it (again). That is how these moves happen.
This is why I am less interested in the obvious bear case than I probably should be. I know it. Everyone knows it. If you don’t here is the list, bluntly put. AI is crowded, hyperscaler capex is absurd, software has a structural problem, equity supply is rising, token costs are falling, the IPO calendar creates funding needs, levered ETFs and options can turn a normal wobble into a stupid candle, Warsh could say the wrong thing, oil can rally, and rates can ruin the party. Fine. All of it is true, and none of it is new. If you’re bearish and somehow needed more material, I hope I have made your day!
Anyway, the market spent two weeks being forced to stare directly at every line of it, and the index still closed higher, which is the part the bears conveniently do not want to talk about, because it is more annoying than the bear case itself. The market has been handed so many reasons to break, and so far it has chosen to rotate, hedge, complain, de-gross, absorb supply and move on.
Positioning is the first reason.
