• Market on auto drive

    The general equities markets are moving to new highs. This tendency is related to a combination of five factors:

    1. Expectation of higher rates moves money from fixed income to equities
    2. The tax deal has moved forward expectations of future higher net profits
    3. The Fed has been controlling market liquidity through its reverse repo operations and the management of rates on excess reserves
    4. Index investors tend to move to riskier assets using popular ETFs
    5. Algos have had an effect familiar to self driving cars: every small change in external conditions triggered a small adaptation (buy the dip.) This has pushed equities volatility to lows not seen for years

    These auto driving market forces offer a false sentiment of security, especially while equities are reaching historical high valuation in the context of a low GDP growth.

    In this general context, we can see below that Treasuries/ REITs are sold while money continues moving into the QQQ/SPY ETFs.

    Volatility is compressed.

    Even though higher rates should push the PM down, we can see that money is coming into gold and silver, even though the gold miners themselves have experienced a negative Money Flow for weeks. I cannot explain such a move.


    I still closely follow the 20DMF, The Cumulative Tick and now the new real-time NQ8 and Small Caps Money Flow that came on-line last week. I believe that changes in liquidity will start appearing there. For now, only the small caps have displayed weakness at the end of the trading day Friday.