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Price Spikes Weaken the Market 10/4/22

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That's right. Apologies for repeating, but when liquidity is tight, and getting tighter, these buying surges rob demand from the future. And that is true whether this is the commitment of "cash on the sidelines" (rarely) or short covering (usually).

Now, here we see evidence that indeed there was a rush of cash off the sidelines and into the markets yesterday. Not just for stocks, but especially for Treasuries. The Fed's RRP money market fund of money market funds by money market funds, and for money market funds, so that they shall not perish from the earth, dipped by $173 billion.  That's a lot of cash to commit to the markets in one day.

But wait. What's this? You say that big drops like this happen at the end of every quarter? Dressing up Macy's window for the regulators and customers, you say?

Can I hear an Amen? This drop wasn't even the largest end-of-quarter drop by far. I think that it's safe to conclude that there was no movement of cash from the sidelines, except to the extent that the gang was finished showing what they wanted to show their investors when they closed the books for the quarter.

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So I think that we can also safely deduce that these rallies in both stocks and bonds were driven by short covering. And that's bearish. Because once the shorts have covered, who will buy my wonderful stocks?

But meanwhile, the rare but not unusual megaphone pattern at the lows on the hourly chart of the ES, 24 hour S&P fuguetures continues to broaden. The last peak was at 3736. Approaching 5 AM in New Yak City, the ES is about a point shy of clearing that. If it fails, bears should get ready. But if they get through, the pattern suggests a target of 3777 at 2 PM ET.

The technicals lopsidedly favor the upside for at least the pre market and AM hours in NY. The 5 day cycle projection of 3760-75 is consistent with that. Hourly cycle oscillators and momo have broken out to new highs and remain at very strong slopes. This thing looks higher.

z4370

Meanwhile, back at the big picture:

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Still a point and a half shy, and threatening an hourly trendline break.

I would be very happy to be wrong here. I'd say that it would need to be below 3710 in NY's first hour of regular trading. 

z43ce

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Bear market rallies are vicious suckers. They take no prisoners. Shorts get squeezed out. Then the market drops to new lows. 

That will not change until the Fed reverses policy. 

As a general rule, stops on shorts should be tightened as declines age. Furthermore, the risk of shorting increases exponentially as declines age. There's no reward in shorting a decline that has persisted for 3 weeks, and is the third leg in a 6 week decline. 

There's nothing new, different, unusual, or particularly notable in this rally. Absolutely nothing.  

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6 hours ago, DrStool said:

The last peak was at 3736. Approaching 5 AM in New Yak City, the ES is about a point shy of clearing that. If it fails, bears should get ready. But if they get through, the pattern suggests a target of 3777 at 2 PM ET.

Blew that out. 5 day cycle projection 3820. 

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