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Here's Why the Market Really Sold Off on Monday 7/21/21

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I don't know, and neither do they. To me, it's annoying, laughable and, admittedly, somewhat entertaining that the Wall Street captured media crowd constantly feels the need to make up ex post facto reasons for the market rising or falling day, after day, after day. 

Always ex post facto, never ante.  

I try to do ante, sometimes successfully, sometimes not. What's the point of explaining something after the fact it it's not useful in foreseeing what's coming? Furthermore, there's always one very good reason why the market did something on a particular day, which the Wall Street yakking yaws never mention. It's "Because that's what the biggest dealers wanted."

I hope that you agree that Wall Street is like Vegas, a big casino. The Primary Dealers are the Houses. They make the rules and they take the skim. But unlike casinos, they need inventory to run their games. When they don't have enough inventory, and their customers are loaded with it, the dealers shake the tree a little. That way they can pick up the low hanging fruit and rebuild their inventories.

In addition to being light on long inventory, they may have built up huge short inventories over the course of the preceding rally, so they profit from triggering a selloff with a little judiciously placed selling to light the flames of panic. They may even feed the reason machine by telling their customers "why" the market is doing what it is. When Bob Pissonit, or Maria Barfaroma calls to ask them about it, they dutifully spit up what their friendly dealer said a bit earlier. 

Unfortunately, we're not privy to dealers' equity positions. We're only privy to dealer positions in their fixed income inventories. We get that from the Fed every Thursday. And we know that despite the Fed taking most of their bond inventories off their hands, they're still long Treasuries and other fixed income up the pitoot. So, kudos to them for piling up the profits there in this quarter. They're going to do well. 

I report on their positions from time to time in the stream of my regular reporting at Liquidity Trader. You can get these reports, risk free for 90 days.

The dealers know that triggering a buying panic in bonds will send a signal to many of their customers to dump stocks. The dealers stood ready to accommodate that on Monday, and we saw the very predictable recovery yesterday.

How do I know that it was totally predictable? Because I predicted it. Ergo, if I predicted it, anyone else who has been paying attention for a few years to how this game works could also have predicted it. 

The Wall Street media however, is in the business of making shit up after the fact to keep their clients - Wall Street banks, happy and entertained, while keeping the banks' customers, mostly institutional, ill informed. Institutional traders are the most herd-like creatures of all, and the dealers are good at herding them. 

Since we don't know the dealers' stock inventory positions, we are reduced to intuiting what's going on by gazing at the charts. There, the rally shows signs of extending today in the early going. But we are, after all, still in the AM here in Europe, while in New York, early bird traders are just arising from their nightly slumber, at least the ones who aren't on crystal meth. 

The hourly chart of the ES fucutures are bumping up against some pretty serious looking resistance at 4336 here at 5:20 AM ET. The price pattern looks solid, but the 5 day cycle indicators suggest toppiness and momentum loss. On the other hand (in TA there's always an OTOH), there's a 5 day cycle projection pointing to around 4368. I'd definitely go for that, if they can get through this thicket at 4336-38. 

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This morning, I'm headed out for a museum visit. I'm interested to see how NY opens however, so I'll try to give a timely update on that. 

Meanwhile, as for the longer term stock market technical outlook - Here’s What Friday’s Selloff Means for Our Future

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If you're interested in following the photo journal of my European wanderings, including latest shots from Warsaw, a dynamic, un-Europe-like city, check out my Instagram page

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Still have that 5 day cycle projection of 4395. 

Tonight I found out that Ikea in Poland is just as hellish as in the US. All I wanted to do was buy a fucking pillow, because their ergonomic memory foam pillows are actually awesome. It was like entering Dante's Inferno, combined with a corn maze. The Hotel California. When we finally found the exit, I felt like I had escaped the Gates of Hell. 30 minutes of sheer retail torture just for a fucking pillow. 

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4 minutes ago, BurntOnce said:

over in the napa valley, vineyards are using sanitized toilet water to nourish their grapes.

I too enjoy feces and lysol in my tempranillo.

This prose is art. 

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And that's the way it is, Wednesday, July 21, 2021. 

I'm going to call it an early night. See you dark and early tomorrow. 

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2 hours ago, DrStool said:

Still have that 5 day cycle projection of 4395. 

Tonight I found out that Ikea in Poland is just as hellish as in the US. All I wanted to do was buy a fucking pillow, because their ergonomic memory foam pillows are actually awesome. It was like entering Dante's Inferno, combined with a corn maze. The Hotel California. When we finally found the exit, I felt like I had escaped the Gates of Hell. 30 minutes of sheer retail torture just for a fucking pillow. 

My wife took me there 10 years ago and told her I wasn’t ever going back to “Scandinavian Hell”.

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