The[r]e are cyclical divergences that often take time to play out. The purpose of taking a big picture, bottom-up approach is to provide a framework for thinking about the market and to keep it in the proper context.

In order to better understand price action, a trader needs to be cognizant of market structure, and what is currently driving price, i.e., large day-traders, algo driven HFTs, and most importantly, liquidity created by the Fed; not arbitrary lines, indicators, and moving averages.

This does not mean the trader should have an opinion of where the market is headed, rather than a forward looking view of the market , which allows the trader to be prepared for all contingencies. In turn, this forms the necessary prerequisite for timely execution and money management. […]

The Fed is adding liquidity by way of outright purchases of treasuries, on the 22,24,27,28, and the 29th of February, and is draining liquidity, by way of 2 relatively large ($16.0-17.5 BB) matched sales transactions , on the 21 and 23rd in addition to the 2,5,7 year auctions on 21-23rd. The result will be a net loss of liquidity. This does not mean the market will go up on days the Fed adds, nor does it mean the market will go down, on the days the Fed drains, however the probability for those results increases on those days.

The real question is; in a market driven by liquidity, what happens when you take that liquidity away?


Rocky Humbert comments:

Anonymous writes: "The real question is; in a market driven by liquidity, what happens when you take that liquidity away? "

I beg to differ. I believe the real question is: "What is the purpose or utility of your post?"

If you want to make a market call, go ahead.

I'll give you an example: "I am long the Nikkei. I am short the Yen." Word count: 10

I'll give you another example: "I am an idiot. Don't listen to me." Word count: 8

In contrast, you spent 532 words and said absolutely nothing. Except, that "the market will go up, until it doesn't." Word count:8

Conclusion: it's a good thing that I'm not your copy editor.


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