The only thing keeping the market afloat is the willingness of big market participants to take on leverage to continue buying stocks and bonds. Increasingly prodigious amounts of T-bill supply are not pressuring prices as I had forecast back in ancient times, maybe 3 months ago, that they would and should have. Instead, they have become the basis for taking on more debt via repo and margin, and using it to buy other assets such as Treasuries and stocks. Non-subscribers, click here for access.
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As a result, I have been suggesting to hold on to longs for the time being, and hold off on shorting. However, the market’s pricing is now so extended versus base liquidity, aka money, that we have to wonder where the limit is? Is it here, or is it the sky? Non-subscribers, click here for access.
The trend is still in place and there’s no indication yet that it is beginning to turn. On the other hand, there are indications that price to liquidity ratios are at or near extreme trend limits. They’ve been at other apparent limits before and gone through them, as the movement increasingly moves toward the vertical. They’re so vertical now that it looks “end-stagey” to me, but that’s just a gut reaction born of 56 years of observing markets, not an empirical judgment. We need more. Non-subscribers, click here for access.
It will come down when the weight of higher prices becomes too much to absorb. All we can do is closely watch the price measures via technical analysis, and apply basic TA to price/liquidity sentiment measures, looking for the first signs of a change of direction. Given the fragility of the current structure, I suspect that the turn could be faster than usual. I would want to react quickly at the first sign of a turn. In other words, sell first and ask questions later. Non-subscribers, click here for access.
This report shows and explains the critical indicators that you need to follow to stay on top of the market as it tops out. Non-subscribers, click here for access.
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