Who Ever Heard of a Broadening Downtrend? 3/8/21

I certainly haven’t, and I’ve been watching this crap actively more or less every day for the past 55 years. The market is becoming increasingly unstable, with a series of vicious, rapid reversals, and wider swings both up and down. This has been going on since February 15.

It is consistent with my liquidity observations showing increasing stress on the Primary Dealers, leading to a self reinforcing process of falling prices, collateral calls, and more price declines, etc. As a result, the US Treasury has intervened aggressively to liquify the money markets with the hope of driving cash toward buying the long end of the curve.

It is hardly working. The bond market is testing the price lows again this morning. Meanwhile the Fed waits in the wings, hoping not to need to make an emergency move to stabilize the market before the FOMC meeting next week. Yield control and infinite QE are coming. It’s merely a matter of when.

Meanwhile, the ES fucutures have had another vicious selloff in the overnight markets. It continued through the central European open at 3 AM New York time, but reversed a bit when London opened an hour later.

That rebound is barely visible on the expanded hourly chart. What is visible is the increasing size of the intraday and very short term cycle swings. Volatility is increasing as liquidity dries up and bid-ask spreads widen.

Primary Dealers and other market makers are increasingly pulling those bids and offers as their cash dries up, and their bond fartpolios fall further under water. At the same time, other gang banksters are banging at their doors with lead pipes, demanding cash or more collateral.

The US Treasury has brought water cannon to a gang fight, trying to douse the flames in the chaos. It is spewing $50-100 billion in cash per week into the market.

It might have stopped or slowed the decline in prices, but it hasn’t reversed it. They need reversal. They need bond prices to rally, and rally hard. Otherwise, we head inexorably for an uncontrollable crash.

The Fed continues to pretend there’s nothing to see here, but a few of the more honest, and perhaps less savvy, Fedheads have begun to express susancollinsian concern.

Meanwhile, zooming in on the 30 minute bars, we see hints of what could be an upturn. That would be consistent with the daily and weekly charts, where there were signs that the market should begin to form an important low over the next couple of weeks. The question I want to answer for you is whether it will be from here, or lower.

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