When the Fed pumps $100 billion per month into Primary Dealer trading accounts, we’re not dealing with a level playing field. The Fed has sharply tilted that playing field to the upside. Under the circumstances, meltups become the norm. A whole lot of people fail to understand that and fight the Fed and the tape all the way.
And so it is today. I failed to roll up long SPY call trades last week, not because I thought the market would go down, but because I thought it wouldn’t go up fast enough in the short run.
I was wrong. It’s psychologically difficult to be bullish enough. It’s not enough to be bullish. If you’re not wildly bullish, you’re wrong. The Fed has created a crazy funhouse, and we must view the market in that context.
Here’s how the current funhouse tableau looks from that perspective, with a specific tip on how to trade it.
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