Looking at the huge jump in SPX futures net short positioning, the cratering of the net long NDX positioning, and the increasing net short positioning in RTY,  the more patient smart money is clearly setting up for the next phase. 

Further upside catalysts would/will be more stimulus and good news around COVID-19; helped along by potential short-covering… Earnings news from the likes of Netflix could be good for some upside as well (although there’s a lot already priced in!)…

Downside catalysts would be economic data, bad COVID news and earnings reports.

In terms of the-market-makes-no-sense-at-these-levels narrative — i.e., that economic reality should have stocks 40-50% off their highs (as opposed to merely 15% for SPX) — I could turn that one on its head and say that stocks should be hugely higher on the fact that the Fed has instituted unlimited money printing and the outright purchasing of risk assets, that rates are near zero, and that the government just passed a $2.2 trillion stimulus package — and that there’s much more to come.

Seriously, if stocks aren’t at all time highs on virtually unlimited stimulus, things must be really bad underneath.

The real danger here is longer-term. If traded markets aren’t allowed to price in reality — i.e., if non-market actors (government) succeed at killing price discovery — the distortions, the misallocation of resources, the mispricing of risk, will have long-lasting wholly negative effects on the economy and on markets. We can only imagine what kind of shenanigans the extreme moral hazard of such a scenario would foster in the decades to come.

Now, the Fed says they’ll withdraw once the economy is back on course. Well, literally, after 9 years of expansion — in an economy that was billed the best ever — Powell tried to tighten just a bit and the market vomited all over him (of course there was the trade war too) in late 2018…