Obviously we want the technical analysis to work, that gives us some measure of confidence. TA is chart by analogy, and when the Feds monetary machine is pumping money those comparisons are next to worthless. In a low volume market such as this one there is a bit more support for our methods. Here’s the story line:
A surge in the money flows came in late on the 5th, but since then flattish. OBV falling more than the A/D or always money. and with that the prices dropped while the money held it’s head above water and that is a mild divergence. We should by all accounts be back up at the purple line, 425. However as I speculate the level of selling in this “bear” market is hardly noticeable. Prices drop when buyers and sellers tend to meet at lower price levels. The reasons for that are obvious, the analyst community, and the Fed’s rate hike package shock and awe, caused the market to revalue. Nobody has left the party, yet. Now prices come into the SPY cul-de-sac between the descending trend line (on the 5th) and the support-resistance line, the double kiss goodbye on the 11th and 12th. Then the futures floated us over the top this AM with a boost in Crypto stocks, which along with the FANGs are taking the brunt of the repricing effort.
It is a descending trend line and it deserves to get smacked, but a long fight over this rather smallish line does not help the bulls case. The overbought followed by an oversold MFI is not good either, and I am fully on board with an open above the line Monday, and some kind of effort at regaining that purple line.
The character of the selling is such that we shouldn’t expect a limit down open either. There is just no real good reason to buy stocks here, everyone is loaded up, and nobody let anything go during the now nearly six month journey from the highs. Vis-a-vis the crypto market, that seems to have taken on all the bad attributes of the tech companies, and this smells a bit like the mortgage bubble in 2008. Everyone was sure that housing was solid. Liar loans, and ARMs, and interest only loans. This is far shakier from an investment viewpoint than MBS. If you hold onto your crypto reverse inflation is going to eat up its value. Use it or lose it. The concept of buying crypto on the dip seems completely insane. The cat is out of the bag.
I don’t have the pat reasons why crypto fell out of bed. Except that it is money, and the banks are sending their reserves off in exchange for treasury bonds, which earn interest, in what the Fed calls Reverse Repo. It’s a two trillion dollar market about the same size as the crypto bubble. The two are not otherwise related to one another, one is what the government used to call counterfeit money, and the other is the Federal Reserve note. Not sure why anyone would think that could end badly?