Buyers on top of Buyers - Trading Journal (11.26.20)

Markets are close to all time highs and money inflow is still increasing which makes very bullish. However look under the hood just on the premise of buying one needs to be reminded of a few things.

Margin is near all time high. Traders are leveraged higher than they have every been since 2018, and it is suspected that the margin is on the long side. If a pull back were to take place and the margin can be removed making for swifter down side risk. There have been very small price pull back in indexes but mostly still at all time highs, so we should watch out for any indication of buying weakness in the coming days as it could potentially turn into a real sell off.

No way in hell rates will rise, but why?

Debt is rising so this means economy is still expanding and a positive for equities markets. However if traders were to predict interest rates on the debt will rise in the future they got a lot of reflecting to do. The debt has not be ticking down much since the early 1990s and has only dramatically increased over the past few years. No doubt this debt growth rate can not be sustained if rates were to somehow rise and provide the inflation thesis many so thought to believe is.

Liquidity dwindling?

The velocity of money continues to fall even when supply has increased. It will come back to bite the economy if this rate of falling continues.

Heck why not?

On the positive for equities the financial conditions have never been this good for markets. Government fiscal stimulus on top of central banks monetary stimulus it is by far helping markets continue to grow. How long this will last remains to be seen but it is obvious markets are bullish with all this assistance.

At the end of the day only one thing matters in stock market and that is price. As many stocks continue to rise there is no reason to be bearish on the markets. However one can see signs as to if a drop in price can happen and when.

Thanks for reading!!!

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