Liquidity fades out of the Market - Tech edition

Crash or Bounce ?

The breadth levels are extreme that demand either a relief or a crash.....

Liquidity fades out of the Market

The last 2 times when our Liquidity Index reached these levels the market had a brief bounce on the search to the final low. The final low can come within weeks or months dependent on the re-appearance of liquidity.

Pls also observe that things usually get difficult when the LIQUIDITY INDEX breaks below -50.

Golden5: Breadth update

Breadth is still neutral with (a) still deteriorating upward breadth but (b) strengthening..

Watch Liquidity getting worse again....

The fairy tale of GOLDILOCKS

Once upon a time confidence returned to the MUTUAL FUND Retail Investor and he started investing again in a Markets that seemed safe again...

...therefore he liquidated his LIQUIDITY GOVERNMENT "ULTRA-SAFE"'s at a lightening speed....
....to also invest into corporate risk again hoping that the bottom is in and that all those good corporate names would start investing into capex again and find all the credit they needed in the structured ABS and/ or the short term CP Market...
...or directly in the BANK CREDIT MARKET, now that the Banks lend again to consumers...
...and Corporates.
Let's all pray and hope for the happy end.

ETF & MUTUAL FUND Flows show a mixed picture....

The Casino seemed to be open and most of the action is short term and/ or US Dollar driven. Yes we see some complacency but also a lack of conviction. Treacherous circumstances !!

Let's start with Money Market Flows that show that greed is back and everybody is scared of negative carry....

The Retail Mutual Fund Flows show a relative weakening, particularly on the Fixed Income side. Fixed Income flows are still positive as opposed to Equity outflows. This does NOT support a solid rally !!
Ouch! Looks like the Banks are experiencing ETF outflows. How does this reconcile with the recent action on the banking side is still unclear...
Fixed Income ETFs still act as Safehaven!
What does the still positive but deteriorating action in emerging markets and commodities mean is also still unclear at this point.

SMALL CAPS look vulnerable...according to the FMI

We've put our Flow analysis on a different platform in order to analyse longer time periods and more Tickers.

Our main indicator will be the FLOW MOMO Indicator (FMI) which is a Flow based momentum indicator.

Here we want to look for the direction of the FMI (:down) , the position of the FMI (:below Zero) and eventual FMI Divergences to Price (: negative divergence= see red arrow).

The FMI has been calculated on high frequency Volume datasets and then been sampled into DAILY Charts to allow for more historical comparisons.

Small Caps hit 3 out of 3 and that even after a bounce of the 50day Bollinger Bands.

Conclusion:

I'd be cautious the next weeks with a bearish bias (according to the FMI)

SPYDER and GLD FLOW update

SPYDER

GLD

Good solid Liquidation from the Large Traders (see light thin blue lines) which has put all traders below their respective VWAPs (Short term= 2000 minutes, Swing= variable measure which captures holding periods around 1 month)

(VWAP: volume weighted average price)

Economic Update

STATE STREET CONFIDENCE (measures real institutional asset allocations)

RETAIL MUTUAL FUNDS
MONEY MARKET MUTUAL FUNDS
MARGIN DEBT
ETF FLOWS


CREDIT MARKET

• Retail and Institutional Money gets sucked into Equities again (...can't afford to miss the rally...)
• Margin Debt indicates a huge increase in speculation
• Money Market Funds shows signs of complacency
• Most ETF Inflows are fading
• Fixed Income ETF were a safe haven in 2009
• Commodity speculators like ETF's
• Banking ETF's see already outflows again
• Credit/ Lending is still contracting at a devastating speed

3 MONTH FLOW ANALYSIS: Banks, SP500, TECH, GOLD

XLF: FINANCIAL
OBAMA has done a fine HIT JOB and scared the large TRADER (light blue line to the right)

SP500: WEAK since November!!

TECH:

Look who really enjoyed the SANTA Rally (right side of the chart: light blue line), but experienced some serious outflows after last Friday's OPEX

GOLD:

The counterrally was NOT supported by VOLUME.

(ANALYSIS as of EOD THURSDAY, Jan 20)

GLD & SPY last 3 months FLOWS: Healthys look different...

From following this blog you now we look at the large Tarders line compared to the Price and look for divergences.

In both charts we see the big guys taking money off the table in a not to subtle way.....

Santa Rally seemed rather technical than anything else..

So far Gold and the S&P500 seem to experience some bullish technical seasonality from the quants, that does NOT seem to be supported by institutional buying.

Fly in the ointment could become the financials that received a bit this week in a sector rotation out of tech into banks......

Look what the Shorts got for X-Mas.....

The SDS ETF is a 2x Short ETF of the S&P500 and seems to be fairly liked in the "Hedgie" community.

Following our blue large Traders line we have to conclude that at least some subset of the Trader's Universe has reloaded their short positions or at least is silently doing it......

Golden5: Volume: YEAREND ASSESSMENT

We've shown you the distribution in the SPYDER (as a proxy for the S&P500) before X-Mas and figured it would be illustrating to look representatively at the EEM (Emerging Markets ETF) to give you you another perspective of the institutional Money Flows. Emmerging Markets have been the HOT play next to Corporate Bonds (Investment Grade and espescially High Yield) since March, thus we feel strongly about the leading character of this market segment at this juncture.

Also look at this medium term up/tl. Volume 55 Moving Average, which tells a similar story.

A Final Observation....

The one thing you might have noticed, after having read through all YEAREND ASSESSMENTS, is the fact that all markets seem to have topped around AUG-SEP in terms of Investment Flows, Breadth, Sentiment & Momentum. Once you find these spikes the negative divergences (= "weakening of the interals") can start to develop. Each gage and each market is different and operates on its own timescale, meaning these processes need time to develop.

The journey might be differnt for each one but not the destiny....

(unless Mr. Market decides to surprise us with new Spikes...!)

(That all said pls don't forget that Mr. Market always opts for the path of maximum pain and a series of mature neg. Div's doesn't exclude the possibility of another swing to mature our Divergence even further. "Probabilties ain't Certainties"..... )

Yearend Window dressing

SPYDER/ S&P500
A Spike up and above 1120 in the holiday season on less compelling Volume contains the major risk of a headfake unless we see some follow through in the first week of Jan....

GLD/ GOLD
...doesn't look too healthy, maybe bottoming in a week or two.... (mid Jan ??)

EUROPEAN vs US CREDIT Contraction & Mutual Fund Flows

If you're looking for a loan (commercial or consumer) in the US, you better wear your best suit...

....and given that this Credit contraction is global (look here for China) the same is true in Europe.

If you were wondering who is powering the Santa Rally...... it is NOT the retail guy, because he is busy saving & delevering....

SPYDER FLOW from Mar 3- Dec 18

The blue line representing the large Traders show how the big money has supported this rally and also when it decided to take money off the table.

Isn't it pure coincidence that the smart money deserted right around the time when the Equity Mutual Fund Investors decided to take it easy on their US domestic Equity allocations .....?

All in all you get the picture why Volume has deteriorated so much if only the machines and prop desks are left to play AIG and Citi......

Investment Flows and Bank Credit

US TIC report

Money Market Fund Flows
Mutual Fund Flows
US Bank Lending
Do you see the greenshoots (nobody is using this word anymore ?!) in the Bank Lending report ? CAPEX and Consumers are getting hammered!!