Year to date in a two minute tour of the hourly chart. There is the long descending gold trend line from New Years to the middle of March. The small gold arrows show where price was rejected. In two instances the (green arrows) price actually broke through only to fall back. Those are moments when signal traders get reamed.
There are various confluence moments when support lines come into play at approximately the same price point. These horizontal lines are old gaps which didn’t fill in the last gasp rally preceding the selloff last year. Those open gaps were the professionals clue that the rally was doomed, all those gaps which didn’t close.
Sometime around the middle of March there were three consecutive oversolds on MFI (purple) and higher lows and a flurry of green bars on the volume line. The A/D jumped (always money) and they finally broke out. That was a lot of work for nothing….
The rally was like a knife through butter (sellers want higher prices – give it to me give it to me, give it to me baby) rallied all the way to the 460 line forming a small head & shoulders at the 450 Green line. Then dropping, preceded to test that blue line as resistance at 430 three times. Prices dropped again, then set up a nice ascending trend line and looked to be finished, then rallied hard to the confluence of the blue line and that upward trend line before dropping pretty hard setting up a falling dotted blue trend line which it has tested and failed at four times so far.
There is a third flurry of volume in the recent action, not as large as the other two. but with some green bars. The character of this rally confirms that buy volume is actually pretty good. (Long green bars, short red bars) The A/D peaked on April 1st and that pretty much relieves the hourly trend on the always money, of any fault. The OBV is falling and that’s important. MFI has recorded far more oversolds than overboughts but three of the four overboughts are since the middle of March.
The buyers can’t really hold this thing together, but this is not about volume, (call it a buyers strike if you want) which is disheartening, while overall volume is pretty low (not enough selling to create a capitulation) and this works with the overall view that like the 2008 market, this market is being gutted like a fish and when the selling picks up the market drop will crescendo.
The players have lulled themselves to sleep, hedging the downside, without actually letting go of any stock, and reallocating into value. Hold your FANGS and hedge, and buy your Value. (Like I say, there is enough money to buy both, check the monetary base) So why isn’t the market going up?
Answer seems obvious, indexes are recalibrating into lower priced stocks. Sure it’s a zero sum game, sell $1 of TSLA and buy $1 of GM (Cathie Woods). That shifts the overall weighting profile and the index drops. They have been selling some individual stocks and I would speculate that those will get more buying action but that’s another post. With the markets poised for another one trillion in buybacks this year, the supply demand equation gets tighter. This is one of the mechanisms removing collateral from the index.
Remember when that happened in GFC the Fed had to rush in and replace that money. The stock market sold off when the collapsing mortgage market leveraged prices to the downside. And the question here is crypto, and the market is turning almost minute by minute on the direction of the surrogate currency, which represents real wealth destruction. It cannot offer any collateral, it’s only money after all. Crypto may be money but BANKs cannot swap it for Treasury bonds in the Fed’s RRPO market. Crypto owners can cash in and buy T bonds, but 3% a year when they can make that in a day playing the digital currency bourse?
Crypto owners can cash in their digital, put the money in money market funds and the BANKs in turn will roll that cash into short term Treasuries putting more pressure on the Fed’s RRPO program. That’s is a one-off-market-leverage scenario that could go wrong. It may seem antithetical but within six months, on the current path we are on, the Fed will be buying stocks (SPV). Special Purpose Vehicles – which were first unveiled in the 2020 market event.
The problem confounds the limits of Federal Reserve monetary policy, the great devaluing has little to do with supply and demand, sellers are not selling, the market pricing mechanism has spoken, (prices are too high) and the investors swapping shares feel pretty much chained to the official analytics. If the FED does remove stock from the market that brings the supply demand equation back into the market. Concurrently they would end the stock buyback program.
Simple answer: Fed takes a trillion worth of stock off the market, Congress puts limits on company share buybacks, but companies hardly care about that restriction if the Fed is doing the job for them. Those shares go on their balance sheet and are closely held as they say in the industry. This alleviates one part of the disappearing collateral problem from 2008, and the Fed can control the flow of share buybacks and tamp down volatility. The Fed chief was just reappointed to another term and that green lights the Fed’s long held desire to have all the powers of a central bank, and distance themselves from the whims of Congress.