Author: Lee Adler

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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The combination of market sentiment that has gone insane and the coming deluge of Treasury supply have rendered the financial markets increasingly fragile. At the same time, that does not rule out continuation of the rally. Non-subscribers, click here for access. 

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Survival of the bullish trend in stocks will depend on the willingness of dealers, hedge funds, and institutions to continue to increase leverage in order to support rising prices. They could use the coming crush of T-bill supply as collateral for new borrowing to buy stocks and bonds.

Or they may decide not to.

I know of no way to forecast when the willingness to constantly increase leverage to support the bull market will end. Nor do I think it necessary to do so. Normally we can see the signs of reversal via technical analysis applied not just to stock prices, but also to the liquidity measures that we track here. When the tide begins to go out, we should see the signs of it in both, in time to take the appropriate actions. As of now, we see xxxxxxxx xxxxxxx xxxxxx xxxxxxx.

In the meantime, we must keep our radar up and running.

Here are the charts and analysis that show you how to view this and when to be ready to move. Non-subscribers, click here for access. 

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KNOW WHAT’S HAPPENING NOW, before the Street does, read Lee Adler’s Liquidity Trader risk free for 90 days! Act on real-time reality! 

Attention New Subscribers! Please check your spam folder for your subscription welcome messages and post notifications and whitelist Liquiditytrader.com. Some email providers like Hotmail and others which use the Proofpoint gatekeeper are blocking Liquidity Trader emails completely. I have been unable to get them to stop. Please notify them to “Let my emails go!”

If you continue to have issues receiving Liquidity Trader emails, just check here daily at 9 AM ET for the latest posts.

THANK YOU FOR YOUR SUPPORT!

Withholding tax collections were strong in June. The US economy shows no sign of slowing. More importantly, strong revenue growth has restrained the growth of Treasury supply. Consequently, the US Treasury was able to continue T-bill paydowns through June, reducing the negative impact of heavy coupon issuance. Non-subscribers, click here for the rest of the story.

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We were able to use the data to foresee that, and the fact that the impact would be bullish. We also knew that the paydowns would end in July and that the resumption of T-bill issuance that would result in renewed withdrawals from the Fed’s RRP facility. That’s because money managers would switch from holding Fed RRPs back to holding T-bills as they were issued. The decline in the RRP fund would resume. Non-subscribers, click here for the rest of the story.

Given where I expected the RRPs outstanding to be at the end of June, last month I guessed that the facility would run dry in November or December. But the RRPs never got as high as I expected as money managers took some of the cash from the T-bill redemptions and used it to buy stocks and bonds instead of depositing it in the RRP facility. Non-subscribers, click here for the rest of the story.

Now bill supply is starting off July at a gargantuan level. Putting 2 and 2 together suggests that the RRP slush fund will run dry in October, even at the current revenue growth rate. Non-subscribers, click here for the rest of the story.

Here’s the illustrated story of how we got here, and what it means for your trading and investment strategy. Non-subscribers, click here for the rest of the story.

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KNOW WHAT’S HAPPENING NOW, before the Street does, read Lee Adler’s Liquidity Trader risk free for 90 days! Act on real-time reality!