Since April, market participants have withdrawn $1.7 trillion from the Fed’s RRP slush fund. That’s the equivalent of $200 billion per month in QE. It doesn’t work via the same channels, but the effect has been similar. There’s still over $800 billion left in that fund, and for the balance of December withdrawals will be minimal.
I warned about the possibility of this effect in Liquidity Trader years ago as the RRP slush fund built up. I forecast the drawdown for the precise reason that we knew it would happen, and we have been tracking it, and its effect on the markets regularly as the process has gone on. I will be posting a couple of updates on the various aspects of this over the next couple of days. Here’s the latest in the ongoing saga. Tax Revenues and Liquidity are Crashing
Enjoy this rally while it lasts. There will be money to be made on the short side when it ends, but it’s likely to last longer than bears can survive if they short too early.
For some perspective on the daily trading patterns, I will again start with the 4 hour bars on the 24 hour ES S&P fuguetures. They’ve run into some trend resistance around 4725, and the 4 hour basis oscillators look extended. So the bet would need to be on at least a consolidation from here.
Hard to know what will happen today based on the hourly chart and yesterday’s breakout. First guess would be a pullback to the top of the prior uptrend channel. Then we’ll see.
For moron the markets, see:
- Swing Trade Screen Picks – No Gifts for the Holidays December 11, 2023
- Stock Market Dancing on the Ceiling December 10, 2023
- Gold Got There Fast But Race is Over December 6, 2023
- Tax Revenues and Liquidity are Crashing December 4, 2023
- This Chart Tells Us Exactly When the Bull Market Will End November 26, 2023
- A Rally Can’t Live on Hope Alone November 20, 2023
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