Here is the thing.
When markets put in V bottoms it does not allow for a proper mental adjustment to take place, as the fundamental macro narrative lags badly.
Investors essentially become stuck in a bearish macro narrative that was created, in the first place, by plunging prices.
The pain of the plunge tends to resonate for many months, especially when something as violent and unexpected as April’s move takes place.
Prices rising rapidly, basically erasing the entirety of what market participants have anchored their bearish bias to, creates a complete disconnect between investor perception and market reality.
The market has effectively thrown down the gauntlet.
It is daring those who remain anchored to a bearish bias into short positions or to liquidate.
It is tempting those who are bullish into taking some off the table, as Wednesday’s near 2% plunge in the SPX forces participants into believing that this market might not be done.
It is using April’s chaos to keep investors off balance.
Every 1% plus down move now becomes a trauma filled reminder of April.
Every bout of volatility comes with a feeling that markets can get slippery fast.
Markets do not rise this far, this fast, while everyone remains skeptical, only to provide a good entry for shorts and a good exit for frightened longs.
There is motive and energy in every market action and reaction.
Everyone had this market wrong in April and everyone continues to have this market wrong as we close out May.
Higher for longer.
A greater move than most anyone expects.
The secular cycle demands it.
It really is that simple.
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