🍔Short Squeeze Is On

Investors are in disbelief of this rally

Welcome back to MktContext where we study the US economy and time the stock market.

The short squeeze is on! The stock market rebounded from lows to highs in the shortest amount of time, ever.

The market is rapidly climbing the wall of worry. Several weeks ago we called the off-ramp and oversold conditions. We were fortunate to have bought the dip near lows.

Our IWM position is up 15% from the low and outperforming the SPX. Short-term trades given in prior weeks are outperforming as well (MRVL +30% since).

Many investors are in disbelief of this rally, still holding cash waiting for a dip to re-enter. But there are no dips in a lock-out rally. Without a plan to re-enter, they are missing some of the strongest rally days in the entire year. Hence why market timing is essential.

Today’s topics: Why investors are still worried about recession, ceasefire progress, three pillars of a bull market, our portfolio.

Wall of worry

A Wall of Worry is a classic psychological effect where the market keeps rising in the face of skepticism. Lately we are hearing from clients, peers, and social media plenty of “reasons” why the market should not be at highs. The reasons generally revolve around the Iran ceasefire, the status of Hormuz, elevated oil prices, Fed rate hikes, AI disruption, private credit, and overall market fragility. Plenty of reasons to be worried.

When the market rebounds sharply, investors are caught short or holding cash. The natural reaction is to assume the rally is false and that markets will fall back down. Hence why bearish arguments abound, put forth to justify incorrect assumptions.

The point people miss is that markets look through headwinds as long as the outlook is improving. Think back to Spring 2020 where markets rebounded well before vaccines were announced or lockdowns were lifted:

Market looks through headwinds

Similarly in the April 2025 selloff, the 90-day tariff pause was followed by a US-China trade deal shortly after. Markets never retested the lows.

Paradoxically, the wall of worry is necessary to fuel a durable rally. As bears begrudgingly capitulate, their buying adds fuel to the rally. This is market psychology at play.

The question is: Are you fully invested? Or still holding cash, watching this soaring market from the sidelines?

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• Iran ceasefire holding

• The three pillars of a bull market

• The bottom is in

• Our portfolio and trades

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