We called for mean reversion or chop today and we certainly had the mean reversion and chop on Jobs Friday. The unemployment report surprised and was much stronger than expected. Very low unemployment is inflationary. This gives the Fed the green light to continue its QT program, to fight inflation.
They have barely started their QT program. The massive chop and prop price action is indicative of the post pandemic hyperventilating dip buying crowd that has shown up since the pandemic. Pre-pandemic, the market would have sold off one or two more legs without the constant prop and chop.
The Feds balance sheet was reduced by about 16 billion this week and only about 1% (or $90 billion) off its all time highs on April 13th. It will be interesting to see where the stock market is once $1 Trillion in liquidity is removed, if they don't pivot first.
There were 6 V-reversals today that formed a converging pattern in the Nasdaq futures.
The Stock Index Portfolio was down 11.3K to put the portfolio in a 12.5K drawdown since Wednesday's equity peaks. The portfolios are up about $2,300 on the week and on the month based on hypothetical signals.
We have been out of sync since mid-July and are waiting for a 15-20K drawdown in the hypothetical equity curve before we start trading. That number could arrive intra-day on Monday or Tuesday.
This week 4 out of 5 days were losing days. Wednesday included a huge gain in the portfolios while Monday, Tuesday, Thursday and Friday were all losing days but Wednesday's gain generated a small gain on the week. Prior to this week, the winning percentage for daily P/L was at 75% so it is due for "cooling off".
Fed speak has re-iterated the QT program this week and economic data has affirmed the Feds position. The Bond market moved accordingly this week while stocks moved higher.
Another black swan event that no one is always talking about is something to consider as well with the geopolitical tensions that seem to be slowly rising.