Fundamentally, all economic indicators suggest an impending recession in the last quarter of this year. But the jobs have been robust and no recession can occur without first signs of weakness there and that's changing now, Initial jobless claims are slowly rising and the latest unemployment rate picked up. To make matters worse interest rates are at ~5% and no signs of a pivot(actual rate cut, not just pause) by FED, all this while QT is occurring - this is just a recipe for breaking the system which was so fragile in the first place. Regional banks are slowly falling and things will only get more complicated with CRE defaults looming. But the market players are well aware of this and a crash won’t occur just by the worry of what’s coming, there for sure will be a first move with concerns and we just had that sampler crash last year. But, the actual doom crash will only occur when things actually hit the roof and there are clear signs of turmoil in the economy, what will that be and where could that come from?
Bears are relying on the upcoming TGA refill but it remains to be seen how much of it will drain bank reserves or if will it be supported from RRP instead which can lessen the impact. There is also another narrative around stagflationary concern which could propel FED to not pause, but the leading inflation indicators do not suggest so, in fact, deflation is what that’s more probable looking at the latest data. With the almost certain pause in June FOMC, there is no real reason for the market to crash here. In fact, pauses always lead to a rally. But this rally on rate pause does not happen for healthy reasons or rather it goes up only because there is no reason for the markets to fall, no that markets want to go up, there is a difference there. But, a bear, especially one who only relies on FA will hate this rally for obvious reasons, as the saying goes “the market is not the economy”. There is FA and then there are market dynamics. Usually in these late market topping processes after the first crash move is made and there is a huge negative sentiment, with everyone fully hedged and speculators wanting to sell the rip pushing dealers to offside, and there is no real turmoil occurring, markets will rally here just from the elastic pull of offside positioning enforced by the passive money inflows and aggravated by short seller squeeze. It is not a case of MM trying to teach a lesson to shorts as narratives suggest but just the balancing act from the ebbs and flows of markets.
But, make no mistake, It’s a bear market rally and not a new bull market, in fact, it's a “Sucker rally”. In recent years, these rallies actually overshoot to ATHs like in late 2019 before the Covid crash or Bitcoin rally in late 2021, but that doesn’t change the character of it or the reality of market cycles. But there is a slight problem here for perma-bears, how long can this fall sucker rally last? Month? A couple of months? or a year like the 2019 rally? That is where analyzing broader markets and looking for divergences/convergences will help. Each market will be uniquely placed and doing TA on an individual basis can put the path wide open but knowing the fact that on the big market turns they all go hand in hand will help in narrowing down the path/projection.
Bears are relying on the upcoming TGA refill but it remains to be seen how much of it will drain bank reserves or if will it be supported from RRP instead which can lessen the impact. There is also another narrative around stagflationary concern which could propel FED to not pause, but the leading inflation indicators do not suggest so, in fact, deflation is what that’s more probable looking at the latest data. With the almost certain pause in June FOMC, there is no real reason for the market to crash here. In fact, pauses always lead to a rally. But this rally on rate pause does not happen for healthy reasons or rather it goes up only because there is no reason for the markets to fall, no that markets want to go up, there is a difference there. But, a bear, especially one who only relies on FA will hate this rally for obvious reasons, as the saying goes “the market is not the economy”. There is FA and then there are market dynamics. Usually in these late market topping processes after the first crash move is made and there is a huge negative sentiment, with everyone fully hedged and speculators wanting to sell the rip pushing dealers to offside, and there is no real turmoil occurring, markets will rally here just from the elastic pull of offside positioning enforced by the passive money inflows and aggravated by short seller squeeze. It is not a case of MM trying to teach a lesson to shorts as narratives suggest but just the balancing act from the ebbs and flows of markets.
But, make no mistake, It’s a bear market rally and not a new bull market, in fact, it's a “Sucker rally”. In recent years, these rallies actually overshoot to ATHs like in late 2019 before the Covid crash or Bitcoin rally in late 2021, but that doesn’t change the character of it or the reality of market cycles. But there is a slight problem here for perma-bears, how long can this fall sucker rally last? Month? A couple of months? or a year like the 2019 rally? That is where analyzing broader markets and looking for divergences/convergences will help. Each market will be uniquely placed and doing TA on an individual basis can put the path wide open but knowing the fact that on the big market turns they all go hand in hand will help in narrowing down the path/projection.
Comment:
Also looking at euro-dollar curves and what they are currently pricing in, at the same time CME Fed watch tool as well, both suggesting a market cut in September, this can mean only one thing - market turmoil by September. Because there is no way the FED will cut rates that soon without some form of the catastrophic outlook for the economy. And as markets are forward-looking, they could well begin moving down by August. This also aligns with the general behavior of market crashes in the September/October period, be it 1929 or 2008.
Where does this leave Bitcoin? Crypto in general is even more correlated to liquidity in the system than any other asset, pure casino. In times like these, it should generally be weaker even if traditional markets rally to ATH.
The BIG SHORT is coming soon, but until then don’t fight the trend. The market won’t die just because it should, momentum has to turn over first. How am I trading this? Swinging on both sides when R/R is juicy and scalps when they are not. Will continue to update this thread as a marker.
Where does this leave Bitcoin? Crypto in general is even more correlated to liquidity in the system than any other asset, pure casino. In times like these, it should generally be weaker even if traditional markets rally to ATH.
The BIG SHORT is coming soon, but until then don’t fight the trend. The market won’t die just because it should, momentum has to turn over first. How am I trading this? Swinging on both sides when R/R is juicy and scalps when they are not. Will continue to update this thread as a marker.
Comment:
Extended rally into end of year
Comment:
This correction is deeper than expected for an extended rally and certainly looks like a modest rally with yields also reaching 5%
US10Y