Market Signals Are Not Working As Expected

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Marketsignals,Volatility,Reservebalances

The author discusses the current state of the market, noting that traditional signals are not behaving as expected. They cite examples like declining reserve balances and implied volatility metrics failing to trigger the usual market response. The author suggests focusing on how the market functions rather than fundamentals or technicals due to these unusual circumstances.

) wasn’t responsible for yesterday’s market rally. Overall, It was a solid day, with 377 stocks rising on theNothing has changed in my view, mainly because we know the call wall sits around 5,800, and we’re at the tail end of volatility dispersion season, with earnings season kicking off on Friday with JPMorgan. Yesterday, we saw implied volatility across the MAG7 names decrease.

The first instance was the decline in reserve balances, which we discussed extensively in the Free Commentary section and on YouTube. The balances fell as expected, and whileresponded with a decline, the S&P 500 did not. It’s also important to note that reserve balances have not returned to previous levels yet. With the BTFP draining, it’s possible we may not see them return to those levels.was likely to move higher, and it has.

The 180-week cycle is the dominant cycle, and most people who follow cycle analysis know it’s powerful. This cycle is due to peak any week now, though these cycles are rarely perfect. It did peak early in 2022, and it bottomed late in 2023.From studying the market’s liquidity profile and the spreads between the bid and ask, it seems everyone has disappeared. Maybe they’ve all become 0DTE day traders or traders of Nvidia weeklies—I don’t know—but the silence is deafening.

 

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