Why is this time different? I don’t know about you, but to me, this looks like every other short term bottom we’ve had for the past dozen years. I guess it could be different, and maybe we’ll know this morning.
Trend resistance is at 4387-95 between 5 AM and 7 AM NY time. Around the NY open, those lines will be around 4380-90. If they don’t clear those lines this morning, this could get ugly.
The 5 day cycle projection for this up phase is 4310. They got to 4306 yesterday. I think that’s close enough for government work, but we’ll see. The trendlines see all and know all.
We have Fed circus today. The charts are set up to send a signal one way or the other.
By the same token, the Fed just finished settling $110 billion in MBS purchases from Primary dealers over the past week. This is the regular mid month thing that almost always triggers a rally as that week draws to a close. So far, judging by the market action, almost none of the cash has been committed to equities or fixed income.
Where did it go? The Fed’s RRP slush fund. The Fed RRP Slush Fund (RRPSF) rose from $1.087 trillion the day before the MBS settlements began to $1.240 trillion yesterday. The RRPSF rose by $153 billion. $110 billion was from the MBS, and the rest was courtesy of that little market selling panic last week. Sellers put the cash into MMFs, and the MMFs immediately plowed that cash into the RRPSF. What else can they do. There are no T-bills to be had.
That will change as soon as the debt ceiling suspension is passed in the next couple of weeks.
Source: NY Fed RRPSF page.
I deliberately chose a start date for this chart of Feb 21. The RRPSF hadn’t started yet. It was at zero. That was 2 days before the US Treasury began regularly paying down T-bills. The holders of the bills that got redeemed in the T-bill paydowns sent the cash straight to the Fed RRPSF. I’ve chronicled this regularly at Liquidity Trader. If you want to know what’s going on with this stuff, and you should, then Liquidity Trader is for you. It’s all about following the money.
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Meanwhile, for your longer term infotainment and edification:
Get Ready for the Coming Bond Market Bloodbath
