5:00 AM ET
This speaks for itself.
Slight breakdown overnight, and then immediately back to the low side of the range. Yesterday’s rhythm was like atrial fibrillation. Next comes a stroke.
My takeaway is that there’s dark matter or dark energy rendering the dealers unable to maintain orderly markets.
My guess is that if they can’t recover more than half this last down move, the next target would be the 3390s, and if that doesn’t hold, 3360s.
If they clear 3430, then they probably go back to 3450-55.
Very difficult to trade.
8:30 AM ET
Here approaching 8:30 AM in New York, the ES fucutures have recovered to the critical, broken uptrend line. But having hit that, they’ve fallen back. A rollover here would give the bears some prospects of a smash, but a continuation of the rebound would put the bulls back on top.
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Short term cycles have entered down phases. But this looks like a consolidation, not a top.Here’s why and what to do about it.
The chart pick screens are spitting out a ton of interesting patterns. I’m adding 9 picks this week, 7 long and 2 short. 4 picks were stopped out last week and one which was a symbol error was also closed. That will leave 18 open picks, including 14 longs, and 4 shorts.
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The market has the benefit of $115 billion in Fed mid-month QE MBS purchase settlements this week. That would normally be very bullish.
It’s notable that the market has not done more with it. And why not? Still massive Treasury supply along with surging corporate debt and equity issuance is absorbing most QE. There’s not enough left to power an endless bull trend in stocks.
That has been our thesis for the past month or few, and the market seems to be bearing that out. Stocks are stuck in a broad trading range and bonds are weakening.
$83 billion of the MBS settled last Thursday. That helped put $82 billion in Treasury coupon issuance to bed the next day. Whodathunk that the Fed would pump into dealer accounts almost the exact amount that the market needed to absorb the Treasury issuance!
Amazing how that works.
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Normally this much QE every month would be wildly bullish. But the supply of financial assets has risen to meet the demand driven by QE. We’ve reached stasis – equilibrium, so to speak.
But it is fragile. Bonds are teetering on the brink of an abyss. If they go over, and bond prices fall (yields rise), the system would collapse without another round of massive Fed intervention.
So we need to pay attention. Do bonds go over the cliff? How long would it take the Fed to react if they do? And will it be enough, yet again?
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