In a stunning turn of events the market took a trend breakout and turned it into a fakeout. Most shorts probably covered when stops were violated late last week and Monday, leaving a dearth of demand in a range made bare of bids by repeated crossings over the past 3 months. We’ve seen this pattern of enormous moves within a trading range time and again, simply because the lack of cash means that the market has no depth of bids. Meanwhile there are plenty of sellers at successive declining peaks within the range.
It remains to be seen whether there are still buyers at the bottom of the range. Given the deluge of Treasury supply in the pipeline that will suck vast amounts of cash out of dealer trading accounts, I highly doubt that we will see meaningful support at the lows. This comes at a time when the 6 month cycle top is due with preliminary indications suggesting that the down phase of that cycle may have begun today. We should know for sure within a couple of days.
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