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The Hourly Chart Bear Market Shows the Way to the Seventies Crash 3/4/21

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The S&P futures were down 35 points from the NY close yesterday at 11 PM ET last night. They rallied back to even at 3 AM. They are again down 22 as we near 5 AM in NY. 

Good morning, and welcome to a newly drawn crash channel on the hourly chart. 

tvc_3057539fdd079fad30946c66e8c826b1.png
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 The ES needs to be above 3800 by the time New York opens to break this trend. 

When we left the ballpark last night, the 5 day cycle projection was 3795. They broke that before recovering from "sport" lines around 3780. There's no such thing as "support" in a bear market. 

Is this a bear market? Well, technically not on the daily chart yet, of course. But look at this hourly chart. A string of lower highs and lower lows. Is it a fractal of what lies ahead? 

Chartists are fond of analogs. Of course, they almost never play out the same way, ultimately, but this hourly chart looks exactly like the daily chart of the Dow 1973-74. 

Screenshot 2021-03-04 110138.png

 

Ah yes. Those were the days my friend. I thought they'd never end. What came next? The Crash of Summer 74. 


Screenshot 2021-03-04 111957.png
 

Yes. I was trading in that market. It was before I became a big shot stockbroker on Wall Street. I was a kid a year out of college with a street vending business in Philly, selling fresh brewed coffee, donuts, and bagels on the corner of 15th and Market Street, and inside Two Penn Center. Yep, ahead of my time.  I'd work in the morning and then spend the whole day sitting in the customers' gallery at Walston and Co. Everybody in that crowd was 50-60 years older than me. Crusty, cynical old curmudgeons. 

Like me, today. 

They'd say things like:

The trend is your friend. 

Don't fight the Fed.

He who sells what isn't his'n must buy it back or go to prison. 

If the market broke or popped, they'd all murmur, What! Was there some news? By then there was a news ticker scrolling board to watch. We'd all wait intently to see what crossed. 

The big day every week was Thursday. That's when the money supply data was reported. We'd all wait intently after the close for the M1 numbers. Then we'd wait a little longer to see what Henry Kaufman - Dr. Doom, and Al Wojnilower- Dr. Death, would say about it.  

They were the Fed watchers of the day. Unlike today, with the Fed publishing reams and reams of daily and weekly data, back then, the Fed didn't publish any data beyond the money supply, and announcements on setting the Prime Rate. Beyond that, interpreting monetary policy was like going to a card reader. 

One thing was sure. Bond prices kept falling, and brokers kept failing. They were dropping like flies. They all owned bonds, and were all leveraged to the hilt. 

Sound familiar?

Walston failed in 73, and merged with DuPont Glore Forgan to become DuPont Walston. It too failed not too long after. Dean Witter took it over. Then some years later, Morgan Stanley took over Dean Witter.  Virtually every big brokerage firm failed or was forced to merge over those years. Check out this list.  

Remember John Houseman? 

https://www.youtube.com/watch?v=aMPu99_Xvjw

Yeah, well. They lost money the old fashioned way too. They leveraged it. 

Stocks began to recover in 75, but bonds were in a relentless bear market until 1982 of course, when Fed lawman Paul Volcker took out his handcuffs and arrested the bastard.  But thanks to that relentless bond bear market over a hundred Wall Street firms failed in the 1960s and 70s.

That led to concentration into ever bigger broker dealers, with ever bigger trading operations, ultimately becoming too big too fail. And that of course finally brought forth the Fed put under Greenspan, and the expanded Fed put with QE, under the Evil Bernanke. His reign of terror caused a financial holocaust for millions of risk averse elderly American savers, who ultimately were forced to eat the principal of their life savings because of ZIRP-Bernankecide. 

So, sure the similarity between this hourly chart and the that old Dow chart is probably meaningless. But there are a lot of massively leveraged Primary Dealers out there who own gargantuan bond portfolios. I'm willing to bet that they are dead again, just like last March. The Fed had to stage an instant $2 trillion intervention then to get them out of their graves walking again. 

But it took 3 weeks. Zombies don't like to walk around. Now the US Treasury is pumping $50-100 billion a week into both dealers and other major investment firms while the Fed sits with its thumb up its butt. But Lael Brainerd noticed, and went public about it yesterday. They know this is more than just a little problem. It is the biggest financial crisis in the history of the world. They have no choice. Yield control is coming, and that means unlimited QE. 

What will the short term effect be, to say nothing of the long term. I certainly don't know. I do TA to try and confirm the current trend, and to see when things are changing. Right now, I have no doubt that they're changing. I will keep you updated every week at Technical Trader

To post your observations, and snide, but good-natured, comments, click here to register. Be sure to respond to the confirmation email which is sent instantly. If not in your inbox, check your spam filter. 

 

 

Meanwhile, here's some free stuff I've written about this unfolding catastrophe. 

US Treasury Injects Another $30 Billion Into Market

 

Treasury Announces It Will Inject ANOTHER $25 Billion For $125 Billion Weekly Total

 
 

 

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  • DrStool changed the title to The Hourly Chart Bear Market Shows the Way to the Seventies Crash 3/4/21

Bitcoin hit a 6 month cycle projection of 57,000. So is this a top or a consolidation. Don't know. Watch the channel line now at 45,200. The trend is bullish if that stays intact. 

Swing cycle oscillators are on the sell side, but remain in positive territory. That suggests consolidation unless they drop materially below their respective zero lines. But if they do, BTC will drop to 35,000 in a heartbeat. 

tvc_373232cf7a474428a9eababdb83891af.png

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The 10 year Treasury yield hit its move projection but is hanging around.

Of course that means that bond prices are stuck near their lows. That's the real problem, not that the yield is at 1.5%. That won't break anyone's back.

But when your bond portfolio is only worth $85 and you borrowed a $100 to acquire and hold it, you're in deep shit. That's about what the current situation is for many holders, including especially Primary Dealers.

The enforcers are banging at your door with lead pipes. They want their money, and you don't have it. 

tvc_d06bd1b651e5c85ffe126b62258dfd92.png

 

So here we have this big problem and it's despite the US Treasury mounting a massive rescue operation in the last week. Using its $1.6 trillion cash hoard, it has now injected $145 billion into the money market since last Tuesday 2/23, including $30 billion settling this afternoon. 

They have scheduled another $25 billion to hit next Tuesday, and no doubt they will announce even more this morning at 11 AM. Stay tuned for that.

Considering these cash injections, we have to wonder how bad things would have gotten had the Treasury not done this.  Even with this support, it's not enough. Merely stabilizing the bond market will not solve the problem of dealer inventories massively under water and being hit with collateral calls. 

Meanwhile, the Fed sits on its hands and says, "Oh, this is great. It just means the economy is recovering!" That may be true, but the "it's great" part is BS, and you and I and the Fed knows it.

Fed Gov. Lael Brainerd wrung her hands publicly about it yesterday. Yield curve control is coming. That means unlimited QE for as much debt as the Treasury issues as far as the eye can see. 

What will the consequences be? I do my best to answer that question from the research and analysis I illustrate for you in each Liquidity Trader report. 

Here’s The Evidence That The US Treasury is Bailing Out Stricken Primary Dealers

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For me and my fellow digital nomads in Europe, we are at a moment of truth in the EUR/USD exchange rate. If it falls below 1.20, we're in good shape. But if it starts to uptick from here, we'll need to work harder to maintain purchasing power!  😉 

Note that since I came to Europe in November 2019, I saw my dollars erode in value by 15% at the peak in January. Still 11%. 

USD has been trash as Europeans and other non US investors sell Treasuries and repatriate their investment principal back into euros. 

tvc_48cb119036546b7f2b34ed8d95a65179.png

 

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"the BOJ purchased almost twice the net issuance of Japanese government bonds in 2017 and now owns 43 percent of the outstanding bonds. By purchasing large fractions of both the flow and stock of the bonds, the BOJ has effectively controlled long yields."  As of 7/2019

https://research.stlouisfed.org/publications/economic-synopses/2019/07/15/the-asset-holdings-of-the-bank-of-japan#:~:text=To control yields in this,has effectively controlled long yields.

Not a news flash.  It's always just been a matter of time until all central banks are singing. 

 

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19 minutes ago, PullMyFinger said:

ES 15M. Wow, 20, 30, 40 points come and go as quick as a wink. Bully better stop goofing around at that 5/8 line at 3789, or that 4/8 line down at 3750 looks like it may get a visit. 

 

Screen Shot 2021-03-04 at 8.25.27 AM.png

Disorder. Illiquidity. 

Treasury sending in $30 billion today. 

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20 minutes ago, DrStool said:

Disorder. Illiquidity. 

Treasury sending in $30 billion today. 

On the other hand, I guess I could have said it the other way 'round in capitalstool vernacular--if bears don't break 3789 with conviction on one of these trips down to it, the potential rises for the bears to give bulls access to their nether regions that they generally only reserve for their proctologists. That's what makes a market, I guess. If you can call this a market lately. I don't know if the glass is half full, half empty, or whether to crap or wind my watch. I'm really struggling with Mr. Market lately. Trading feels like gambling even more than usual. 

Is $30 billion going to be enough today to do, well, something? 🙂

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Treasury just announced another $30 billion in bill paydowns settling next week.  That's a total of $55 billion for the week, and $205 billion since the first installment in this rescue on Feb 23. 

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3 minutes ago, DrStool said:

Treasury just announced another $30 billion in bill paydowns settling next week.  That's a total of $55 billion for the week, and $205 billion since the first installment in this rescue on Feb 23. 

$1,500,000,000,000 - $205,000,000,000 still leaves a few bucks in the seat cushions with which to cause mischief. Holy cow these numbers look kinda big when you type them out. 

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