Technically Speaking: Bulls Run As Liquidity Floods Market

As liquidity floods the market, the bulls continue to run the market. However, was the recent consolidation enough to reset market exuberance?

Over the last few weeks, I discussed the weekly “sell signals.” Such suggested upside would be somewhat limited for markets near-term. However, that flood of liquidity also limited the downside. Such has indeed been the case, as volatile markets made little headway since February, but dips continue to get bought.

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Bulls Liquidity Market, #Technically Speaking: Bulls Run As Liquidity Floods Market

With “stimmy” checks hitting bank accounts, “retail trading” stocks should get a boost as former gamblers and “pandemic lock-ins” return to Robinhood.

Furthermore, the surge in liquidity from the CARES Act last March is now working its way back into the economy as well. Those Treasury balances are getting drawn down to fund expenditures such as extended unemployment benefits.

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Bulls Liquidity Market, #Technically Speaking: Bulls Run As Liquidity Floods Market

Unsurprisingly, all this liquidity is finding its way into the markets.

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Bulls Liquidity Market, #Technically Speaking: Bulls Run As Liquidity Floods Market

Such has pushed equity allocations to nearly “Dot.com” level highs.

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Bulls Liquidity Market, #Technically Speaking: Bulls Run As Liquidity Floods Market

In other words, the bulls see “no risk” in being invested in “risk” assets.

 

Stock Buybacks Return With A Vengence

As I noted in “Powell’s Easy Money Promise,” stock buybacks have returned with a vengeance.

“No, this is not the ‘cash on the sidelines’ argument which I debunked previously. Following the pandemic, corporations drew down credit lines and hoarded cash due to economic uncertainty. Now, with expectations of recovery, corporations are once again beginning to deploy that cash.”

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Bulls Liquidity Market, #Technically Speaking: Bulls Run As Liquidity Floods Market

As I said then, while the mainstream media hope is all this cash will be flowing back into the economy, the reality is that it will primarily go to stock buybacks. Again, while not necessarily bad, it is the “least best” use of the company’s cash. Instead of expanding production, increasing sales, acquiring competitors, or making capital investments, the money gets used for a one-time boost to earnings on a per-share basis.

This past week, share buybacks hit a new record.

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Carl Schwartz 2 weeks ago Member's comment

Yup!! Bull's run for exit is next!!