With options expiration tomorrow — the 3rd Friday coming early this month — the S&P 500 continues to grind its way towards the all-time high near 1550.  The problem that many investors should be wary of as we approach this level, and at this point a re-test feels inevitable — one does not fight the Fed after all — is that there hasn’t been all that much of an appetite to load up on equities as much as there has been a rise in price but not in money flow.  Since the beginning of the year more than $6.9 billion has flowed out of the SPDR S&P 500 ETF, more than 5% of AUM.  This is a very significant drop which says that just like last year, retail is not participating in this rally.

It is as much a sellers rally on balance as anything else.  With Brent Crude holding over $115 per barrel and the price of Gasoline futures at all-time seasonal highs the possibility of another correction in the S&P 500 seems likely when Q2 earnings start coming in and the numbers miss estimates.   This is a liquidity driven rally in stocks that has poor fundamental underpinnings.  Investors better not hope for an equity rally beyond 1550 on the S&P because that will likely be coupled with unacceptably high commodity inflation.

But, for right now the market continues to rise and fighting that trend for the next few weeks would be foolish.