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SPY Bear Thesis: Update and Disclosures

SPY Bear Thesis: Update and Disclosures

Bears are still alive? Well, I kinda sorta warned of this meltup in "SPY: Pop and Drop" linked below, or at least half of it (the 4090 variety, not the 4140 variety LOL). And no, I'm not saying *this* is the top, unlike those other bears who call a top every week. All I'm saying is there is far more downside than upside at this time, so trade accordingly. I've linked a snapshot of my bear tracking portfolio below.

A month ago, I published "One of the Scariest Topping Patterns in History" when ES/ SPX was about 3970 stating that we were nearing the end of the bull market. That thesis still stands although the ascending wedge in that idea now looks questionable.

In that piece, I recommended shorting garbage such as ARKK , NIO , NGA , PLUG, and other laggards. While ARKK nearly recovered briefly to its March 16 level before fading, the others are still down significantly from their mid March levels despite SPY making new highs. I recognized that it is tough to call tops exactly and thus recommended shorting garbage rather than SPY or legit stocks given historical events such as 2000 where the weak fell first. We should view the market as a whole rather than have tunnel vision for the S&P 500 (which is to say - we can be in the "topping" phase while the index continues to make new highs - given that many asset classes (speculative tech, oil , copper , EV stocks) are already in secular decline, and some have been so since late January. I've since added some new ideas such as LLY , CHWY , etc that have had very mixed results in this melt-up. I tried to algorithmically identify stocks that were similar to ARKK , NIO , NGA when they were making weak recoveries in mid March - this hasn't worked out as well as I hoped it would so far, although the jury's still out on whether or not this is a viable strategy given the historic melt up - certainly, it appears most of these stocks, weak as they are, need at least a slight bearish tailwind to make money on shorts.

1. We see the same CMF divergence appearing again that we did in mid March before the -5% correction. This time, VVIX (which measures volatility of the VIX ) is also rising with S&P 500 which in the past has been a warning sign that a correction could come (its record since January 2020 is pretty good - the VVIX's record before January 2020 is actually quite mixed, so take this with a grain of salt).

2. We also see SPY approaching a key regression trend line that has led to previous corrections (although it's quite possible the absolute top is at the next line right around 4180-4200 which would put it in line with the September 2020 and June 2020 corrections - this would put the top 2-3 weeks out possibly which would line up nicely with seasonal patterns).

3. Last week and today, I scaled into mid June and January 2022 dated puts from 4100 to 4000 and also IWM puts for both June 2021 and January 2022. I also added /VXM positions two weeks ago that are down about -4%. If we do achieve the 4180 level, I may scale into yet more puts and double down on VIX futures around 15.

In the interest of transparency, I have added open positions in ideas from the past few weeks to a paper trading account opened March 16, 2021 that exclusively does short positions from my published ideas since I don't have the capital yet to actually trade all of them (my real account isn't really a fair look at my ideas since I have hedged my shorts with SPY calls every week, and those have gone bonkers). Over that time, my Bear tracking account has returned 1.7% vs 3.8% for the S&P 500 (okay, not great, but still not the disaster that giddy bulls think that Bears are suffering LOL). The ARKK , NGA , and NIO shorts in March were very lucrative; however, SPY fell -5% nearly immediately, and that certainly helped. Recent shorts ( CHWY , LLY , NRG, VG )... very mixed to negative, but once SPY starts falling hard, they should hopefully pay off just as well as the previous set.

Position tracking snapshot here:

https://imgur.com/6wpqgEA

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