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I hate this rally, but…

I hate the current rally in the market.


Because it’s all liquidity driven.

But, this is the market that is presenting itself.

Expecting volatility to decline and the market to continue to drift higher seems to be the play right now. That’s how I see it. I don’t like it, but that’s what I feel from the price action in conjunction with the actions of the Federal Reserve.

The Fed has basically backstopped the entire credit market. It’s created some odd distortions in the market. I don’t trust that this rally is rational, but it’s happening.

A blowoff rally is a possibility at this point, in my opinion.

Why do I believe that?

The credit market is backstopped by the Fed. Interest rates are near zero. Profits need to made somewhere. The carry trade could thrive, which would mean short volatility should go well.

This would be violated when something else in the market, credit market or some other market, breaks. The cause could be inflationary, but would more likely be deflationary in nature, which could create a black hole effect.

Timestamp: originally posted on 5/4/20 at 5:47 pm. Purpose of timestamp is to help me review my opinions and see where I went right or wrong.


Author: Trader Court

CPA first, pivoted to python programmer focused on data science which I apply to my own stock and options trading.

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