Liquidity Perfect Storm

S&P 500 decline led by tech met a first hesitant, then more resolute, intraday rebound led by tech retracing prior decline that XLI, XLB and XLE were unable to counter. Thanks to weighting as the share of Top 7 stocks had grown considerably with this bear market rally, these rotations have been insufficient in lifting up the index.

And today isn‘t shaping up to be much better – after breaking my key 4,403, the bears have 4,385 followed by 4,360 in sight. Notably, this is happening when Treasury is sucking liquidity from the market place (that money to buy fresh debt issuance has to come from somewhere, and we can be debating the transmission mechanism strength and accounting) and the Fed is still shrinking its balance sheet. As yet another tightening sign, BoE just raised...

Today‘s unemployment claims are likely to reiterate the hawkish Fed message ultimately, as in that the central bank still has room to tighten – and more of the realization that it would do that, which neither 3m nor 6m yield reflect totally.

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Let‘s move right into the charts (all courtesy of www.stockcharts.com) – today‘s full scale article contains 4 of them.

S&P 500 and Nasdaq Outlook

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4,448 remains elusive, but breaking 4,415 would bring that target within the realm of possibilities latest tomorrow. Even though unemployment claims came largely in line with expectations, the little rip being generated, is likely to be sold into during the regular session. Again, tech relative resiliency during the session would be the deciding element – and Nasdaq would lag behind value and cyclicals relatively speaking (today).

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