What’s behind this recent stock market rally?
Investors have been buying. A lot actually, over last few days. We’ve noticed a 2nd-highest reading in terms of buying in 5 years on the 3-day average up issues ratio. The move has been very aggressive indeed.
Why is the market going up then? Having the inflation data and potential further rate hikes being announced this week.
It’s because too many people are actually bearish in the market right now. Phenomenal amount of puts have entered the market recently.
Last week we saw 3 times more hedging than the extremes observed in 2008 financial crisis. It’s quite common for the market to react opposite to what general public is expecting or react at a peak of a certain sentiment.
Let’s remember that today in few hours, the CPI data comes out and there’s a lot of expectations that it will be lower than what the market anticipates, which should strongly contribute to this rally continuation.
As usual when such periods come to the market, be extra careful with position sizing as it’s worth to take some risk to not miss out on the quick gains but it’s very easy for the market to quickly change lanes.
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