This may not amount to much. The blue dot descending trendline (dog chasing the car) lost relevance (dog caught the car?) and this flag pattern setup which is presently in wave five, appears to be a bit short of the top line, (bearish) should price break out the bottom, a classic continuation.
Money flows took a minor down turn yesterday as the oscillators were diverging positively against the price action for several days, but now it looks as though everyone will line up in one direction. Should the levels break those purple lines and the bottom of the flag ton the bar chart, that’s bearish.
The interim low is 385 1/4 and usually when those things get taken out the algos pile on. This is a big op/ex today so anything is possible, and dust may not clear until Monday. Nothing on the daily to inspire the bulls. The thesis that strong hands must capitulate is the actionary move anticipated. (And if the hedged institutions take their hedges off, that might be the case) The A/D would drop sharply in that instance.
Retail buying might buffer price drops on some beaten up FAANG stocks. This is really backwards, so be careful, strong hands selling, weak hands accumulating. The real question is crypto. This is the place where money can be incinerated. The Real Estate market in crypto is prima facie, and while the Cassandras will be pointing at mortgage figures, the (digital) cash buyers will be running to buy property. And you know if you have a thirty day escrow anything can happen to your funds. Interesting times.
Being a rather large options expiration let’s proceed. The impressive late day surge did not create the ideal hanging man signal but maybe it’s close enough. The ball is in the market’s court right now. My thought is that the big players took off some hedges (when they got more expensive) and now they will proceed to start offering up their stock, but remember, sellers want higher prices….
To that end there may be a nice pop in the futures market Monday morning. We won’t know for a few days. If they can get a faux rally going maybe the retail buyers will take the bit and maybe we (they) won’t have to get rid of any shares at all!!! Disavow yourself of the notion there is cash on the sidelines, that money is in the two trillion dollar RRPO swap.
Brief review: the money flows are still deteriorating, there is a slow bleed out, and not offering any signs of capitulation. Today’s volume bar would have been better if it was green but either way. What the bulls need is for the sellers to stop selling!!! Then they can conjure up a low volume rally and I think they might try to hit it hard and fast at the open Monday, while the selling is slow and steady. The rally could run out of gas in a few days.
I am especially concerned with the A/D, the always money which is a component of share buybacks, Fed credit policy, which is still loose, and strong hands investment firms like Berkshire. They are poised to dump shares I believe, and may not stand on ceremony here. They could step in Monday and whoosh. Be careful trying to ride this ride, not every roller coaster is for everyone.
Technically that long shadow on the faux “hanging man” asks to be filled. If the market doesn’t fill that shadow then you have a reversal, that’s how the thing works. Should the market make another bottom on the previous interim bottom and form a three pronged fork bottom that would be bullish.
The variables around this market selloff are swirling. The Ukraine war is going off the headlines. Elon Musk is playing this buyout drama with Twitter using cash he doesn’t have. The next event for the markets is the elections, and the primaries are perhaps more important than earnings season. Corporations do not want to see a state by state rollback of Roe V Wade which would imply product boycotts and shareholder protests and some of these companies would be forced to drop their investment, and close franchises in red states.
You know that cute ad with Ted Danson selling Consumer Cellular, the only difference in those two maps is the color, there might be some real differences in those coverage maps, even while the president wants a bipartisan bill to provide internet service to under served areas, the local GOP/FOX news monopoly does not want media competition in red states, they want their own propaganda.
The issue for blue state expats, who suddenly find themselves in the dead zone, trying to WorkFromHome in these remote locations will be access…. Anticipate stories on the news, about people who moved to Boise and now own homes way underwater, and poor or no media connections, who are going to lose their jobs, if they don’t move closer to the signal tower, which is in the next state.
Just do the Republican math on the electoral map, it’s not about numbers, its about concentrating your base and gerrymandering out the opposition, and that means cutting off their media. Or in Texas cutting off the power. Remember, ENRON was a bunch of Texas Electricity traders raking California consumers over the coals, and getting the Democratic governor recalled. Imagine when the department in charge of rolling blackouts gets a hold of their new district maps. Those people haven’t gone away. The heads in corporate board rooms remember how failure to follow Covid protocol impacted business in red states. RvW has far greater potential to disrupt supply chains.
And thirdly the collapse of Russia would be more disruptive than a negotiated settlement. US Intelligence does not want a hardliner to replace Putin, who has already established a policy of nuclear blackmail as a diplomatic tool. A bit of glasnost would be a welcome relief and new elections. Markets are worried about this. Europe pays about $8 for Natural gas which in the US costs around $3. Worst case scenario the US pays European rates. The Russian energy system has been mismanaged for decades. They may only have enough for themselves. NG is the primary fuel for industry and while America is reindustrializing, to bring production back onshore, this could be a serious obstacle to economic recovery. That and too restrictive immigration laws. I wouldn’t count Biden out on using a military solution, (what happens with Russia will not be lost on China. Taiwan is their Ukraine.) For a market already on tenterhooks that would create some real white knuckle time in the indexes.
So far the selling in the markets has been done to undermine the leadership, the FAANG stocks, and there is not a commensurate degree of selling in the weighted indexes these five stocks dominate. The indexes have lost less value. (That is highly unusual) Either the indexes now come under selling, or the rally that ensures is mostly in the Tech stocks, and the former seems more likely at this stage. Large investment firms have yet to capitulate.