I noticed a big change in the tone of market participants over the past 24 hours. It seems that the crowd is now all bulled up because we did not go down on the S&P downgrade. The crowd has seemingly forgotten that they have been looking for a correction. This does not mean that we will necessarily head lower, but it does mean that the risks have increased.
The S&P 500 has rallied over 20% from the November low. While the change in sentiment is unlikely to mark the exact top, it likely signifies that we are in the later innings of this rally. Tops are very tricky as they tend to be processes and can last for months.
There are a few major factors that are in the bulls favor. This rally started with investors at low exposure levels. It will likely take a while to reverse this positioning, meaning that the bullishness has the potential to persist. Seasonality is favorable for the next few months. Cash M&A and share repurchases continue at a steady pace.
I am not planning to make major changes to my positioning. I will be looking to use these higher prices to gradually add to hedges. The decline in the VIX makes protection reasonably priced.