• Why the US markets will continue to weaken and what indicator to follow in the coming days.

    This is a follow up to the article written last week:

    http://www.effectivevolume.com/conte...-March-20-2017

    I concluded that article with the following paragraph:

    Index investing is blind to mundane problems such as earnings, but large US investors are selling the market, especially retail, discretionaries, financials and health related sectors. I think this move will spread to the rest of the market. Once index investors realize their mistake and start selling, finding a bottom will be hard.

    After Trumpcare's failure last week, every commentator will write about Obamacare, about Trump, about the changing pace of the reform agenda. However, in reality the big money pays more attention to higher US discount rates and higher rates on Excess Reserves, which pull money out of US equities. This occurs in the context of historically large rates differentials between The US on the one hand and Japanese and European rates on the other.





    Because funds cannot possibly buy US Treasuries in the current higher rate environment, the only place to be is US large caps through index funds.

    Last Friday was probably the trigger that will push this fine money flow balance out of its current equilibrium. Foreign funds have justified their investments through the Trump pro-business leadership compared with a European bloc that was under threat of collapsing.

    Both narratives are evolving fast: Trump's leadership is now questioned and it is clearer by the day that the European bloc is in no danger of collapsing. No country that shares the Euro currency will leave because no politician will get enough votes for a planned economic or financial collapse. Even Greek voters refused to leave the Euro currency!!

    This is why the Euro is gaining strength against the US$.





    We can see below that the Total Effective Volume patterns on both QQQ and SPY have fallen below their respective average pink line and have failed to push back above it. This is the signal that index funds are being sold.





    Conclusions:

    Be short unless the TEV patterns of QQQ and SPY decisively break above their respective pink trend lines.

    These indicators are updated daily in the freely accessible link below:

    http://www.effectivevolume.com/conte...156-etf-review