About 85% of the mass in the universe and 25% of its mass-energy is made up of dark matter. Dark energy is thought to account for 68% of the universe’s energy. NASA says, “More is unknown than is known. We know how much dark energy there is because we know how it affects the universe’s expansion. Other than that, it is a complete mystery.”
The stock market is like that. We can see the forces driving some of it. We can understand how they work. But there are unseen forces that we don’t understand. But we know they exist because we can see their effects through Technical Analysis.
We saw the effect of Dark Energy yesterday. The market is no longer perpetually extending into the outer reaches of space, driven by Fed energy.
Something is holding it back.
I think I know what it is. I’ve been talking about it for months. Corporate supply. For me at least, it’s very difficult to measure. Some organizations track and report gross issuance soon before and after the fact, but no one that I know of tells in real time the amount of net issuance that’s on the way or has just hit. It’s that net new supply, not the paper being rolled over, that sucks up the market’s energy.
The Fed is taking care of Treasury supply. We know that. But the market must also absorb wave after wave of supply of both net new debt and equity, that corporations are creating and selling. The old buyback fraud is dead. Corporations have seen their revenues cut. Many can’t fund their self theft through their revenues any longer. So they cut the remaining pie into smaller pieces and sell it to the public. Mostly the institutional public.
They don’t have the money to absorb all of it at these high prices. They must sell something else to raise the cash to buy the new stuff.
So we get days like yesterday. We see only effect. We know that dark energy is behind it. And we use TA to observe the effect, and forecast the trend.
Here’s what’s up for today.
The market has tried to set a bottom, but it faces a huge resistance obstacle around 3340-45. What comes next depends on what happens there. If they rollover, at most that sets up a trading range of 3405-3440. It should get worse if that zone generates only a weak bounce.
Conversely, if they get through 3440, the next resistance target would be 3460-65, with the potential for more.
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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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