Stocks Rise Again On July 21 As Liquidity Wave Nears Its End

By Michael Kramer of Mott Capital Management

Thursday, July 21, 2022 7:21 PM EDT

The market has increased again today, which has forced me to believe that the rally I thought was coming after the FOMC meeting has arrived earlier than I expected. That largely seems to be due to the arrival and timing of how reserve balances have worked their way into the market in the form of additional leverage.

We saw the same thing happen when March reserves increased by around $200 billion and stocks rocketed in a very violent manner. The reserves have increased by around $200 since June 29, and we now see the same kind of movement in the market, with the violent buying. The problem is we are probably nearing the end of this liquidity run.

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Again, the timing of this has tended to be around 2 to 3 weeks, but for whatever reason, this time it has happened in a 1-2 week time frame. So again, I saw the rally coming, but being a week late makes a big difference in this case, and I was late. As you can see though that the next move in reserve balances will be down, so there will be a pullback coming.

VIX

The VIX continues to move lower as well, basically killing my entire theory from earlier in the week. It is moving closer to that uptrend, that has been working for the VIX since November. I also saw implied volatility falling across options in the S&P 500 today as well on an individual, verifying the move lower in the VIX.

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SNAP (SNAP)

Snap reported disappointing results and that is sending the stock below $13, and the lower end of the trading range around $12. The chart looked decent a few weeks back, but clearly, the bad results may change that completely if the stock drops below $12.

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Amazon (AMZN)

Amazon is approaching an important inflection point at $125. The stock has failed two other times since going back to May.

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Netflix (NFLX)

Netflix has almost made it back to resistance at $227, and the RSI approaches overbought levels. The big question is if it can get through that resistance and fill the gap that is up $330.

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