On January 24, 2022, it was reported that global stock selloff losses were near $3 trillion. It should be noted that part of this stock (inventory) moved from institutional customers, such as pension funds and large trading firms, to the accounts of NYSE Designated Market Makers (DMM) and Supplemental Liquidity Providing Firms (SLP-Prop / SLMM). In the coming weeks part of the inventory accumulated by the DMM and SLP firms will be sold to corporations who are initiating corporate buyback programs. This buyback process will run until March 14, 2022. As corporate buyback programs progress, DMMs and SLP firms will raise prices of their inventory and institutions, large trading firms, retail investors, etc., will start buying. When DMMs and SLP inventories are depleted they have the option to sell short. During the next decline DMMs and SLP firms will cover their short positions while buying stock (inventory) from institutions and large trading firms at a lower price. This process of inventory control was explained in Richard Ney’s books published between 1970 and 1975. The following document provides some insight to the process as well. On page 10 it states that Market Makers must track their inventory to ensure they are not taking undue risk or encroaching on capital limits.
S&P500: Long Term Decline
As noted with the Dow Long Term Decline post, Friday’s update to intermarket currency futures trading data indicates the S&P500 is also recreating a move similar to what occurred between October 3, 2018 and October 11, 2018. A retracement is expected with a move up to 4,557 (+/-1%). It appears a long term decline has been initiated.
S&P500: Move Upward
Stock chart courtesy of StockCharts.com.
Daily engrbytrade™ S&P500 calculations continue to indication a move upward is expected. The daily right angle broadening formation provides a base for this move.
SP500: 2018 Rising Wedge
Stock chart courtesy of StockCharts.com.
A detailed review of SP500 daily calculations, associated structural calculations and underlying futures trading data indicates the current rising wedge shown in the chart above is repeating a SP500 rising wedge that developed between June 28, 2018 and October 3, 2018. Additional data will be reviewed as the index moves higher.