Don't Crow Too Loudly

Rallies Can Be Short Lived

Posting a chart of the $QQQ since it has been more volatile than the SPY 0.00%↑

On X today and on Facebook I saw Trump supporters crowing about the rally. I wouldn’t crow about the rally any more than I would panic about the break. The CNBC people were shouting at the screen this morning. You could tell they were ticked the market was higher.

As an old trader, I have gut feelings. It worked in the pit. You could just sniff things out, and as long as you were fast on your feet, you made money. Today’s computer-administered and driven market is very different. Gut feelings can lose you money.

I was texting with my wealth advisor over the weekend. I told him I smelled a rally coming. He said they follow the data.

Another finance person I know told me the bond market expects inflation. I see Democratic friends posting all over social media about inflation, and Democratic commentators trying to fan the flames of inflation. I’d go the other way and would have shorted interest rates yesterday on the close.

I think the people opining that the Trump administration is deliberately doing this to drive interest rates down so they can refinance the debt are incorrect as well. As soon as the Treasury announced plans to have an auction, the entire Treasury market would price in the volume of treasuries being auctioned accordingly. The best thing the Trump administration could do is talk to the Treasury market the same way Rubin did during the Clinton Administration. I am pretty sure Scott Bessent knows how to walk that line.

Tariffs are not inflationary. In fact, they might be deflationary.

The Fed might be able to ease rates, but they probably shouldn’t. Being the same for a long period of time as long as market conditions don’t change dramatically isn’t a terrible idea given all the crap we have been through since 2008.

As soon as a group starts crowing on X or another social media platform, the market moves the other way.

My friend Brian Lund posted on X:

Here’s what I’ve been telling my subscribers about the current market action: Although this rally is a welcome relief, historically, it’s probably not the bottom. It could be a short-term bottom, but likely not the long-term one.

At a minimum, we need to retest yesterday’s levels to gain confidence that the final bottom is in. The pain of a crash is immediate, but the healing takes time. It’s a slow, methodical process:

First, prices stop falling. Then, support and resistance levels are gradually recaptured – moving averages get reclaimed, and successful retests make charts look more constructive.

Everyone hopes for a V-shaped bottom, and it’s possible, but keeping an open mind ensures you don’t get caught on the wrong side of this market. In times like these, it’s especially important to have a solid, supportive community around you. And we’ve got one of the best around in The Lund Loop.

Click the link in my bio to join us!

I think he is generally correct.

There is no law that says the bottom of this break has to be V-shaped like it was for Covid. There is no law that says the bottom is in. There is no chart that can tell you what is going to happen, but chartists will tell you that all gaps eventually get filled. We just don’t know when. “Nobodyknowz”. (Chicago Booth people ought to get a kick out of that)

Here is the only thing you can sink your teeth into. This is not a data-driven market; it is a news-driven market. Watch the news feed, not the trading tape. Can you predict the future of the news? No. You don’t know how tariff negotiations will turn out. You have no idea what Trump or anyone in his administration is about to say. You have no idea what any other head of state is going to say.

You might love Trump but you’d have to agree he is the most unpredictable President the US has had since I don’t know when. That’s what makes him a very strong negotiator and is a super power of his.

What they say will move markets right now since the market is very uncertain and searching for a buoy in the ocean.

If you are calculating PE ratios and looking at earnings, it’s a tough trade because that world is disconnected from the market today. However, on the down days, if your powder is dry, you might find some decent values for companies you think are great businesses that you want to hold in your portfolio for a long period of time.

Even if every single country on the face of the earth agrees to 0% tariffs, the world will still not have free trade. But 0% tariffs would see a worldwide market rally unlike few of you have ever seen. A face ripper if you are short.

In France, it will still be hard to buy a bottle of wine from the US/Germany/Spain/Italy even if they go to 0% tariffs on wine. Same goes for Spain, Germany and Italy with respect to their wines.

This will all get worked out, though we have no idea what it will look like on the other side. I think the sheer panic is over.

Time to buy dips, but not with both hands. Buy indexes, or if calls get cheap, buy longer-dated calls, not short-dated calls. I don’t think I’d be comfortable being short a lot of equity option volatility either, unless I had a huge, huge, huge pile of cash and was willing to accept some pain. I could be persuaded to sell volatility in interest rates.

Be disciplined. Don’t panic. Don’t fret. The taking heads and influencers want you to panic and fret because then you listen to them even more, and you will panic and fret some more. It’s a virtuous cycle, for them.

It will work out over the next two decades.