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Chaos in the Hourly Chart Bear Market, Fartcall for the Fucuture -June 30, 1974

This is a syndicated repost courtesy of Stool Pigeons Wire at Capitalstool.com. To view original, click here. Reposted with permission.

Looking at the fartcall anallog for our current hourly chart of the 24 hour ES S&P fucutures, the scary resemblance to the Dow Industrials daily chart of 1973 that I showed you yesterday goes on.

I remember it like it was yesterday.

It’s now July 1974.

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August, was relentless. Screenshot 2021-03-04 111957.png

Every day down a little. Down a little more. Down a little more. Day after day. Trading had slowed from a gargantuan 12 million shares a day, which was crushing brokerage back offices, to as little as 4-5 million shares a day. Watching the tape put you to sleep. Nobody was happy because nobody was short the market. Even the old guys I sat with in the brokerage house peanut gallery were glum. They’d get up every few minutes to pound out a few quotes on the Bunker Ramo on the customers’ table. Or they’d pick up a copy of the weekly Trendline and flip through the charts.

If a company reported earnings, one of the old men would rip off a tear sheet from the loose leaf binder and pass it around. The news ticker had a scrolling light board that we’d stare at vacantly, waiting for something big. Or we’d tear off the paper scrolling version lying on the floor when one of our stocks had some news.

The mood was dark. It went on like that until October, when the Dow finally bottomed at 570. It had come down from 1067 in January 1973. Most of that loss came from a high of 850 in June 1974. It was a slow motion crash. Slow, relentless, and deadly.

The Fed never intervened.

Those were the days.

This morning we have the makings of yet another vicious bounce, courtesy of the US Treasury pumping $30 billion in cash into dealer and institutional accounts yesterday afternoon. It did that by redeeming expiring T-bills, rather than rolling them over as it typically always does.

This now appears to be part of a campaign of paydowns averaging $55 billion a week, plus another $40 billion once a month. The US Treasury is acting in loco parentis for Daddy Jaysus, who is sitting there with his thumb up his butt saying, “Hey, it’s all good. Rising yields signal economic recovery and confidence. A little inflation? We want more! more! more!”

Of course this is BS to try and calm the market. But when markets become illiquid, like this one is, calming talk is cheap and useless. Money talks. Bullshit walks. Right now Janet is doing the talking, forcing a couple hundred billion in cash into big accounts of dealers, banks, money market funds, and other investment institutions.

Unlike Fed QE, which is mainlined into the markets only through the veins of the Primary Dealer system, Treasury bill paydowns go to everyone who holds the expiring Treasury bills. This is diffuse, low powered stuff. Fed QE is the good stuff. The pure crystal meth for the market.

When the Fed pumps $200 billion into Primary Dealer accounts, the dealers use it to immediately buy more Treasuries, or other fixed income instruments, or particularly at the margin, stocks. They love stocks because they’re the easiest to accumulate, market through their PR subsidiaries, on CNBC and in the Wall Street Journal, mark them up and move them out. 

In contrast, when the Treasury pumps $200 billion into the accounts of a broad spectrum of T-bill holders, only a fraction of it goes to dealers who will trade that cash immediately and actively. The bulk of it goes to banks and money market funds.

They get it, stick their fingers up their butts, pull them out, sniff, and try to decide what to do about the smell before acting on it. They let a lot of it just sit there. The stench in the market only gets worse. Or they look for scarce short term paper and bid the yield down on that stuff while ignoring the opportunity to get 1.5% on a 10 year note.

Janet and Lord Jaysus want them to take some of that cash and buy long term Treasury paper, and thereby boost bond prices. That would take the pressure of collateral calls off dealer bond inventories, currently sinking under water and crushing the ability of market makers to maintain liquid markets.

But Jaysus and Janet (J&J) can’t inoculate the market from the selling virus. They don’t get to tell the investors what to do. Instead, they send subliminal messages.

“Oh, this is great. Yields have risen, so now, buy bonds because, well, we’re in a recovery. It’s going to get worse, but you should buy them anyway. You should do it because we’re such good stewards of your money. True we robbed you of the principal of your savings for the past dozen years. But we saved the stock market, and Wall Street, and the leveraged hedge fund speculators. Too bad about you having to spend your savings. But it’s all good. The young people can buy houses because mortgages are free.”

Uh. Not so much.

So, where is sport? Sport is where prices bounce in a bear market. There’s no such thing as support in a bear market, so we look for “sport.” Buy sport, sell resistance, right?

To help look for bounce sport, I’ll zoom out to 2 hour bars.

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3720 was sport and we’re getting a bounce. The chart suggests that that bounce will run into trend resistance around 3780. If that holds, or if they don’t even get that far, then the next place to look for a sport bounce would be either back at 3720, or maybe all the way back to the February low at 3665.

If that breaks, you’ll need a longer term view, which I give you every week at Liquidity Trader.

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This is a syndicated post, which originally appeared at Stool Pigeons Wire at Capitalstool.comView original post.

 

Meanwhile, here’s some free stuff I’ve written about this unfolding catastrophe.

US Treasury Injects Another $30 Billion Into Market

 

Treasury Announces It Will Inject ANOTHER $25 Billion For $125 Billion Weekly Total

Wall Street Examiner Disclosure: Lee Adler, The Wall Street Examiner reposts third party content with the permission of the publisher. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler, unless authored by me, under my byline. I curate posts here on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. Some of the content includes the original publisher's promotional messages. No endorsement of such content is either expressed or implied by posting the content. All items published here are matters of information and opinion, and are neither intended as, nor should you construe it as, individual investment advice. Do your own due diligence when considering the offerings of information providers, or considering any investment.

Lee Adler

I’ve been publishing The Wall Street Examiner and its predecessor since October 2000. I also publish LiquidityTrader.com, and was lead analyst for Sure Money Investor, of blessed memory. I developed David Stockman's Contra Corner for Mr. Stockman. I’ve had a wide variety of finance related jobs since 1972, including a stint on Wall Street in both sales, analytical, and trading capacities. Prior to starting the Wall Street Examiner I was a commercial real estate appraiser in Florida for 15 years. I was considered an expert in the analysis of failed properties that ended up in the hands of bank REO divisions, the FDIC, and the RTC. Remember those guys? I also worked in the residential mortgage and real estate businesses in parts of the 1970s and 80s. I have been charting stocks and markets and doing analytical work since I was a teenager. I'm not some Ivory Tower academic, Wall Street guy. My perspective comes from having my boots on the ground and in the trenches, as a real estate broker, mortgage broker, trader, account rep, and analyst. I've watched most of the games these Wall Street wiseguys play from right up close. I know the drill from my 55 years of paying attention. And I'm happy to share that experience with you, right here. 

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