Relax, there is no way any rational investor, or speculator, should be in this market day or swing trading. The forces are aligned, and we know who they are, there is the LONGEST MONEY, the A/D which after the ramp up on Fedspeak yesterday, pulled back not one bit. The intermediate term, OBV, this is funds, banks and institutional investors, pulled back a tiny bit, and the retail investor, MFI, pulled the rug out from under this market, and to be fair the FUTURES people, (not like you and me) took it down overnight probably because they smelled the retail sellout.
I sorta don’t get it. retail never had that much power. These are people who own GOOGLE, own AMAZON, own Facebook. They are selling those shares and passive investors, who own the SPY, or the index, are NOT SELLING. It’s an arbitrage thing most likely, they are selling their individual shares and buying the index. That makes this bear market a hedge fund project. Money has been flowing into hedge funds so pay attention. (You might want to do it yourself)…
Now the money flows are trying to diverge against the tide of selling, but what is needed here is for MFI to diverge higher The retail buyer (or the hedge fund has to pivot) has to get back in, while they have been living off the Fed PUT, buying calls at inflated premiums with low risk to reward ratios and collecting almost every time.
Now it is beginning to look like the Fed PUT is over, but those money flows also support the assumption that despite rate hikes, abandoned bond buying schemes and even offloading balance sheet holdings, despite all the rhetoric, money flows are still DAMNED GOOD.. The Fed has not tightened one inch….
For the Fed PUT process to work the retail trader goes in and buys, and the MFI moves higher. When that indicator gets overbought, they dump their shares, take profits, and this is where the Fed PUT comes in, the longer term money flow indicators (A/D and OBV) support the action, these longer term buyers take the shares off the traders who want to unload them.
The MFI goes back down while they sell, they reload and do it again, rinse and repeat. So it doesn’t matter how much liquidity the Fed pours into this market, or how much Warren Buffett walking around money is put to work (that is also A/D), or even how brisk is the pace of share buybacks which are usually made at the highs. When the profit picture gets a little fuzzy the company suspends their buyback programs, so even though your favorite company has said they will buy back a zillion shares, they don’t have to do that.
I am looking at the daily chart and the money flows are good, but none of that matters, if the retail investor doesn’t play their part in this drama, and as long as the futures contract, which includes the Japanese Yen Carry Trade, which has blown up, and the EU, which is in the shadow of war, as long as they all have a negative take on things.
If that gap at the open this AM doesn’t close (in a few days) there is more trouble on the downside. Those daily chart money flow upticks were a false dawn. So the institutional buying in the face of a falling market does reflect a positive development, but it may take a few days to see if the institutions don’t join in the selling. If they take it down, it’s going to be a long winter. Right now the retail player is chucking it, assuming the Fed PUT is dead, but there is no evidence of that.