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So we had a nice selloff yesterday. 2% woop de doo.
The pundits got busy early, when Your Rope failed to mount its usual recovery from Asian selling. It’s the Delta Variant, they said. I wonder what they’ll say about today’s rally.
“Oh, the Delta Variant is no big problem in the US or the EU or China or Japan because most people are vaccinated and won’t die,” and in the US only anti-vax Trump supporters are dying. The Trumpist politician anti-vaxxers are apparently leading a Republican voter self suppression campaign.
In view of the fact that the Fed and US Treasury are in the process of pumping $168 billion into the market this week, I must admit that yesterday’s selloff is a head scratcher. Normally, the market rallies during the Fed’s regular monthly MBS QE settlement week. That’s when the Fed settles its recent past MBS forward purchase contracts. This week the total is $128 billion, with $102 billion already done, and the rest settling tomorrow. The Fed is also doing its regular weekly Treasury purchases totaling $20 billion per week. On top of that, the US Treasury decided to pay down more T-bills this week, a total of $48 billion.
So the big guys are pumping a ton of cash into the market, and yet stocks sold off? Where’d the money go? Obviously, longer term Treasuries, which broke out in price, and broke down in yield. The ingredients are in place for more of that. I give the lowdown on that here, along with what to do about it. If you don’t subscribe yet, you can read these reports for 90 days risk free. Click here for details.
So what about the stock selloff? We do have some history of Fed QE MBS settlement week failing to generate a rally. What it inevitably leads to is a delayed reaction- a monster rally after the selloff peters out.
That leads us to this morning’s chart, where the ES fucutures are already 52 points above their afternoon low yesterday. They’ve broken the 2 day downtrend channel, and have a 2-3 day cycle projection of 4300-05. There’s also a thicket of resistance there.
Meanwhile spport is indicated around 4260-64. If bears retake that, then a test of the low should be forthcoming. But if there’s no pullback here, then 4300 looks like a given, and given all that Fed and Treasury cash hitting dealer and other institutional accounts, probably a lot more.
As for the longer term stock market technical outlook – Here’s What Friday’s Selloff Means for Our Future
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