Shallow Thoughts
The Fed is paying the Primary Dealers $110 billion a day. It’s hard to wrap your head around that. It’s as much QE as they did in a month under the original QE programs from 2009 to 2014.
So of course we get a month’s sized move in a day. Yesterday it worked out to mileage of 1.4 S&P points per billion of Fed Panic QE.
Again these are direct payments to Primary Dealers. What the dealers do with the cash is up to them. In the “old” bull market, they used that monthly stipend to acquire, mark up and distribute stocks to their willing customers.
From early March until this week, they were unwilling and unable to do that. Instead, they were forced to use the cash to pay off the massive leverage against collateral that had suddenly become submerged. It was under water–worth less than the value of the loan. The dealers literally could not redeploy the cash. They were forced to meet margin calls.
So the Fed went Mad Max. $110 billion PER DAY. That’s 30 times normal QE, and 30 times the amount of average US Government debt issuance. That’s one hell of a lot of extra cash. The dealers finally saw light this week.
The result? A 20% gain off last week’s low. I had speculated a few days ago, “Gee, won’t it be fun if the market rallies 20%? Then the assholes at CNBC will sit there scratching their butts and noses while they call a new bull market.
Which is exactly what happened. The wholly owned flacks at the Wall Street Whore’nall led the way.
This 20% rule is insane. They apply it to all markets under all conditions, for no reason whatsoever. They consider neither volatility, nor time, nor technical levels, nor Dow Theory, for god’s sake! Dow, Hamilton, and Rhea are rolling over in their graves.
Look, what they call this monster does NOT matter. The Fed is pumping over a half trillion dollars per week directly into the market via the Primary Dealers. It better work. Because the alternative is unthinkable.
Watch that benchmark of 1.4 points per billion. When it starts to slip, time to go back in your bunker.
Today’s trading setup is below. Follow my Deeper Thoughts, with tips on how to preserve, protect, and defend your investment and trading capital, at Liquidity Trader.
Market Trading Setup for Friday, March 27, 2020
Hourly ES S&P 500 Futures Chart
If we simply disregard the numbers, the market’s moves are utterly ordinary. They’re following standard technical analysis perfectly. Support, resistance, channels, trading oscillators. All working just fine.
Even intraday cycle Hurst cycle projections. Working.
Yesterday, we had a breakout through the top of a nice base pattern. Then overnight, we had a pullback to the base, what I call the return to the scene of the crime. This is the critical juncture where the breakout resumes, which happens most of the time, or fails.
Failed breakouts are usually great sell signals. Just after 9 AM in New York, the breakout is slowly fading. It needs to recover at the channel line at 2480, or the rally is kaput, and the next target will be 50 points lower, then even 2385 comes into view.
If the rally resumes, on the upside the target would be the trendline from the market’s all time high at the beginning of the month. It’s currently at about 2640.
I’ll let the market be the judge of pass or fail here.
Reminder- I’m only talking patterns for a day here. This is not the big picture. If you want that story, you must subscribe. Risk free trial and all.
S&P Futures Daily Chart
The ES has dropped back to the bottom of its 5 day “bull market” uptrend channel. It just missed ticking the crash channel upper trendline from the market high.
A traditional chartist would not even think of a new bull market starting until, at the very least, the S&P closes above that trendline. And that would be just for starters. Sorry CNBC and WSJ, this is a bear market as long as that trendline is in force. The number to beat today would be 2652.
If I were a bull, right now I’d be more worrkied about support at 2500 holding. Or the bottom of the trend channel at roughly 2475. If that goes, the rally is dead and the next minor target would be 2385.
Momentum and MACD tuned to an 8 week cycle frequency are on still buy signals. The bulls have that going for them.
Except for one thing. They are at extremely weak levels. Both direction and absolute level are important in trend and cycle analysis. If these indicators roll over at these levels, the implications would be catastrophic.
None of us, even the most cynical, hardened bears, want to see that. A resumption of the crash at this point would be fatal.
Again, this is for the perspective of one day only. The purpose of these reports is not to divine the longer term. If you want longer horizons, join me at Liquidity Trader.
Department of Wash, Rinse Repeat – There’s no oversold parameter in a crash. Positive divergences are almost certainly necessary to form a good swing low. There are no positive divergences on the daily chart yet.
S&P Cash Index Hourly Chart
The red bar at the far right shows where the futures traded overnight. It is well below the uptrend channel on the hourly chart of the regular trading hours cash S&P.
The market broke the uptrend channel at the open today.
The 5 day cycle oscillator went to the sell side late on Wednesday. The cycle low isn’t ideally due until Monday. A downtrend channel hasn’t been established yet. If the market doesn’t recover above 2570 by 11 AM in New York, the 4 day uptrend is finished.
If they get back above that, then the uptrend would remain in force, and could accelerate toward 2700. That’s also the unmet 5 day cycle projection. 
Join me on the Capitalstool.com message board today and I will update you there occasionally during the day. Feel free to join the “fun.”
“And that’s the way it is, Friday, March 27, 2020.”
From earthquake rattled, coronavirus locked-in Zagreb, Croatia, good morning!
Where have you gone Walter Cronkite? Our nation turns its lonely eyes to you.
Meanwhile, here are the latest reports from Liquidity Trader.
On March 3, the Fed converted Not QE into Panic QE. Since then it has pumped $766 billion in cash into Primary Dealer accounts. At the same time the US Treasury issued “only” $147 billion in new debt. So in essence, the Fed issued $619 billion in excess cash.
Other than the hyperinflationary implications, what good has it done? What does it mean for us looking ahead.
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Is Gold Forming A Base
It looks that way, but it’s not out of the woods. The same goes for the mining stocks. This report shows what needs to happen.
This market is a different breed of cat. Cycles have little or no influence. This is a fundamental collapse of liquidity. Traditional technical analysis is more useful. In that regard, the conventional measured move implication of the breakdown below the December 2018 low is 1350. Other techniques point to that area.
I’ve added a few new shorts to our trades list this week. Our initial pick now has a gain of 32.6% since entry on March 3, using no leverage. Short sale margin is 50%. You can do the math.
Technical Trader subscribers, click here to download the report.
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The Fed has undertaken so many rescue programs since Friday that my head is spinning. It’s hard to keep track of it all. A schedule of repo offerings for the next month reads like the Old Testament. Even the rabbis are arguing over it, the underlying question being, “Where is G-d already?”
I’ve tacked it to the butt of this report.
Anyway, it’s irrelevant. The dealers can’t borrow a fraction of what the Fed is offering. Here’s what’s relevant. The markets are now a mass grave filled not with COVID19 victims, but victims of the greatest bubble in history. A bubble built by the Fed.
Here’s what’s coming next, and what you can do about it to preserve your capital and maybe even profit from the big moves that lie ahead. Assuming that trading systems continue to function at all.
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Even before COVID-19 the trend was clear that the Treasury would need to keep borrowing money hand over fist. Now the deficit will explode. This is a hideous problem for financial markets in this condition.
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Get this report and access to past reports. Read Lee Adler’s Liquidity Trader risk free for 90 days!
