Brother, Can You Spare a Dime?
What if there’s not enough money in the coffers, for a bank bail-out?
Last week’s chaos is still in the ‘next shoe-to-drop’, stage:
Auto Loan Delinquencies Surge 50% As Cracks Deepen Across U.S. Credit Markets, link here.
The Bizarre Bankruptcy At The Heart Of This Week’s Regional Bank Meltdown, link here.
“This Is Crazy”: Goldman Stunned By Regional Bank Meltdown; Its Clients Demand Answers To These 3 Questions, link here.
Wyckoff Had The Edge
The market itself told us ahead of time, something’s up.
The top in XLF, identified here. On the heels of that, literally hours before the Dow melt-down, this post.
Note: The Dow post even suggested potential action:
“From a Wyckoff analysis standpoint, it’s all there; a push through resistance to all-time highs, a struggle, then new daily low and now today, a possible upside test.”
The Dow pushed higher in the first fifteen-minutes of trade and then collapsed.
Focus Amidst The Chaos
The analysis links above are a reminder; as the chaos increases, focus is to remain on price action itself.
Let the market tell us its (own) next probable direction.
All of which brings us to the chart.
Financial Sector XLF, Daily
The zoom area shows at least three contact points on a possible trendline (Wed, Thu, Fri).
Short position XLF-25-08, entered early on Thursday, and pyramided late on Friday (not advice, not a recommendation).
Expectations, Next Week
Obviously, the expectation is for continued downside. We’ll probably know late on Sunday, if that’s likely to happen.
The XLF is labeled as EXTO (extended trading hours) eligible. If there’s even a hint of (sustained) upside pressure, the exit may come as early as Sunday night (not advice, not a recommendation)
Stay Tuned
Charts by StockCharts
Note: Posts on this site are for education purposes only. They provide one firm’s insight on the markets. Not investment advice. See additional disclaimer here.
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In the summer of 2023 we could have had a bank problem. At any given time the FDIC only carries enough money to cover 1% of insured deposits. If it needs more money it just borrows it from the treasury. The problem was that the FDIC spent down its money bailing out SVB and the treasury also spent down its money due to a government shutdown. If a medium sized bank had gone under in 2023, this would have created a real dilemma.
The irony is that when the treasury spends down its coffers faster than it takes money in, it pushes money back into the private economy, boosting liquidity. Stocks rip higher even though the backdrop is getting more fragile (or so its theorized).
I don’t know if a similar setup exists now. I hear stuff about the Fed’s REPO being out of money and that this could create a liquidity problem. We’ll see.
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A shutdown might be incorrect, it was the 2023 debt ceiling crisis that drained down the treasury account. But you either way you get the point. Bank failures that occur when liquidity is not present are dangerous.
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Just getting to your comments now, early Monday.
Thank you for the detail and the fundamental backdrop on the situation.
Over the weekend, the next shoe did not drop as was expected. So, this morning as incredible as it seems, the banks/financials are higher. Per the plan on the XLF short, it was exited late Sunday night (with profit) as that ‘buoyancy’ discussed showed up in the price action.
it looks like last Thursday’s wide-high-volume bar is going to be tested (to the upside) and depending on how that goes, it might give a low-risk opportunity to position short again. This time, I’ll be watching KRE.
If that index is following a Fibonacci time sequence, Day 34 from the September 5th high, is this Wednesday. If there’s a blow-up lurking in the market, I don’t see how it could stay up that long … but anything can happen.
Separately, nat-gas, UNG got to the ‘spring’ target and rebounded last night and today. It could certainly launch higher from there.
However, from past experience, it likes to ‘whack’ the participants downward just for fun and I would expect something like that when the EIA report is released. Usually on Thursdays but I have not checked this week’s schedule (yet).
Thanks again for the input. It’s much appreciated.
Paul
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