The Most Humiliating Rally
Between the Lines - Vol. 7
Last week I titled my post, “Positioning Looks Like a Crash is Coming”, which of course led half the internet to decide I had turned bearish despite the fact I was still long and the post actually was very bullish calling for 7400 to trade and that our May expiry 7200/7400 SPX bull call had a high probability of working out.
I have been trying to work out what actually changed last week, because the obvious answer is not good enough. Yes, the market went up again and tech led again. Yes, semis and memory went vertical. And yes, the underweight crowd has run out of clean ways to describe the move without sounding like they have completely missed it.
The thing that’s standing out here is that the buying has started to look less like conviction and more like admission. Conviction will buy because it wants to, whereas admission buys because it has to. Conviction normally has a plan, whereas admission normally just has a sentence it repeats to itself while paying a worse price than it could have a few weeks prior.
I don’t think we are in a clean beautiful bull market where everyone has done their homework and had the realisation that the AI capex cycle deserves a higher multiple. It would be nice, but it would also be bullshit.
What I think is actually happening is much simpler than that. The market has gone just far enough for long enough in exactly the wrong names for a lot of people, that the ones who hated the move now have to buy the thing they spent six weeks calling stupid. This is not the most hated rally; it is the most humiliating. At some point, “I want a better entry” becomes a confession, and I’d argue we are somewhere around that point, which is exactly when the trade gets harder, not easier.
The first phase of this rally was basically survival. Don’t puke the book. Don’t short the recovery because you read three posts about breadth and don’t pretend every geopolitical headline is a secular regime change. Oh and don’t sell the companies still printing earnings. And you were fine. It’s not quite enough now.
Not a lot to update on my book, Phase 3 had a great week last week as did some of the derivatives I hold. I cut the long call leg of the 6500/7000 risk reversal. FSLY got hit post-earnings, not overly concerned with the position being at 2% weight, but a small annoyance since I thought it was about to break out and up. Last week was a good week. This week is the harder question.
