Back on August 1st, 2018 I sent this tweet:

Then on September 23, 2018 (Sunday following the Friday SPX high of $2940.91), I tweeted my concern with FAANG ETF liquidity (they represented a large weighting in passive ETFs which can cause liquidity issues when selling):

Fast forward to December 24th on the day of the Christmas Eve Massacre – when SPX was trading $2351 – a FULL 590 POINTS OFF THE HIGH – and here was why… “Liquidity!”

Lastly, that is why I dubbed THIS GIF the TWEET OF THE YEAR for 2019: Go Ahead and Play It!


Today

Here we sit as Powell has finished talking about balance sheet normalization and inflation and I am not surprised market is confused:

POWELL: WE WANT TO RETURN BALANCE SHEET TO MORE NORMAL LEVEL

POWELL: DON’T KNOW EXACT APPROPRIATE LEVEL OF BALANCE SHEET

And there’s that liquidity word again:


So How Do We TRADE THIS?

Follow the liquidity…

I’m a pattern recognition gal. I take data and give it context.

Put simply: I see market moves coinciding with liquidity changes. And for Context, here are recent liquidity changes: H/T @Barton_options.  Emphasis is my own.

Dec 4-24: net withdrawal of $109.9Bn – AND WOULDN’T YA KNOW MARKET TANKED THE WHOLE TIME
Dec 26-27: 65.8Bn release (40.2Bn on 12.26) – HEY, WE BOUNCED ON THE 26TH!
Dec 28-31: 62.7Bn withdrawal (offset by rebalance) – AAAAND WE WERE FLAT
Jan 2-10: 89.6Bn release – DO I REALLY HAVE TO POINT OUT THE OBVIOUS RALLY WE’VE HAD PAST WEEK…

So What’s Next?

Jan 11-15: $117.7Bn – WITHDRAWAL = LIQUIDITY CRUNCH

  • Fri-Mon: 57Bn (45Bn from GSE, 12Bn from Treasury), starting late morning on Friday.
  • Tue: 60Bn (63Bn from Treasury, 2Bn from Fed QT, GSE release 5Bn).
  • etc…

Jan 16-Feb 6th: $103Bn – RELEASE, JUST BEFORE US TREASURY QUARTERLY FUNDING PLAN

With that, you have my short-term roadmap as it is most likely to be the market’s roadmap. And why fight the Fed?

For nuanced trading set-ups, consider joining me in the LIVE Trading Room where we work through Value and Momentum trade ideas and set ups every trading day.

Samantha


At LaDucTrading, Samantha LaDuc leads the analysis, education and trading services. She analyzes price patterns and inter-market relationships across stocks, commodities, currencies and interest rates; develops macro investment themes to identify tactical trading opportunities; and employs strategic technical analysis to deliver high conviction stock, sector and market calls. Through LIVE portfolio-tracking, across multiple time-frames, we offer real-time Trade Alerts via SMS/email that frame the Thesis, Triggers, Time Frames, Trade Set-ups and Option Tactics. Samantha excels in chart pattern recognition, volatility insight with some big-picture macro perspective thrown in.

More Macro:  @SamanthaLaDuc  Macro-to-Micro: @LaDucTrading