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Stocks were down today, but a $6.5 billion buy imbalance sent the market screaming higher into the close. Today was month end, which can create large buy or sell imbalances. Generally speaking, the quarter ends generate enormous imbalances, but today’s was almost equal to larger than those, driving the market higher in the final 30 minutes of trading.
It wasn’t a wave of bullish enthusiasm; it was either tied to a sizeable end-of-month option contract roll or end-of-month rebalancing. Whatever the case, it doesn’t matter. But these imbalances build over the day, starting at 2 PM on the NYSE, and so if you can see the imbalances and it builds you can get a sense sometimes of the size. By 3:30, it was obvious to those with the better seats that it would be large. The problem is that the real totals aren’t released until 3:50 PM ET, when all market or limit-on-close orders are published.
I can tell you from real-life experience that when you are a “real” trader on a “real” buy side or sell side desk, and you see a market imbalance with 1 million shares of something to buy at 3:50 PM, and there are only 600,000 shares on the tape, you had better take the stock up to get the volume in or try to offset the imbalance, or you are going to have one angry PM calling you at 4:01 asking you what **** happened.
OK, and so how much did you buy?
Yeah, I can tell you from experience the conversation (“screaming”) didn’t go well.
This is what happens when the imbalances are released in full, and all those VWAP and “participating at 10% of the volume” traders have to catch up.
For me, today’s price action changed very little, and today’s late-day rebound was pretty as expected because if yesterday was the start of wave one down, then today’s move higher could mark a wave 2. What was nice about this, too, is that the wave two retracements ended right at the 61.8% level of wave 1.
Meanwhile, the NASDAQ futures appear to be a little more advanced in the process, with the end-of-day rebound taking the index to 38.2% retracement of the entire decline thus far. Does any of this mean the market can’t go higher, of course not. Elliott wave counts can make me, at times, feel like a fortune teller, but it does provide some guidance at points, and it is worth being open to these thoughts and processes.
It is just like the 82-day cycle that seems to be clicking again. If it works, great; if it doesn’t, oh well. However, the point is that it says we have peaked. If you think cycle analysis is garbage, then I can’t help. Unfortunately, we live in a world of cycles, like the sun rising and setting predictable every day, the moon, or the rise and fall of the tides. We all have the same life cycle, from birth to adolescence, adulthood, and death. So, if everything around us can have a cycle, then it seems quite possible that even markets can have a cycle or rhythm.
Markets are supposed to be random, and predicting them is incredibly challenging. I have been through two of the most brutal cycles in market history in 2000 and 2008. Was 1929 brutal? Yeah, I’m sure it was. 1987, brutal. But the 2000 bust was demoralizeing and went on for what felt like forever because every time you thought we bottom, we made a lower low. 2008 was frightening, not knowing if a bank would collapse over a weekend.
I’m not trying to say that we will see a market collapse, but it has become very clear to me that it is very dangerous. I think there is a significant risk to the downside, and if you are a real investor and not one of these people just throwing darts, then being patient may pay off this time, which is why I continue to own high-quality stocks and hold plenty of cash. I provide a link to my metrics on my home website, which are easy to find.
Charts used with the permission of Bloomberg Finance L.P. This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.