S&P 500: Liquidity Drain Drags Stocks Lower – Bulls Need to Hold Above 5180 Today

Stocks fell sharply in the final hour of trading when a nearly $5 billion sell imbalance was posted at 3:50 PM ET. These orders for the closing cross can start being posted at 2 PM ET and build throughout the afternoon, so it is not surprising that the market started selling off ahead of the release of the cross.

There was a reasonably significant volume spike around 3:30 PM ET, which started the afternoon unwind in . It led to a sell-off of about 40 bps in the final 30 minutes. This marks the second day in a row with a significant sell imbalance, following the day before yesterday’s nearly $2 billion that came for sale.

What could be driving the sell imbalances in the last two days is the effect of the Fed’s reserve balances falling as the reverse repo facility bottoms out heading into the quarter end and the BTFP loans begin to roll off. Systematic funds may be shedding some of their holdings at this point. It is not clear yet, but it is easy enough to monitor.

We also saw the HYG High Yield ETF (NYSE:) fall for the second day yesterday, and this is again important to watch. If the liquidity-induced rally starts to fade, the HYG will also struggle, and spreads will widen. The HYG yesterday fell to support at $77.50, which will be a level that needs to be watched because, if broken, it could lead to a return to the lower support level at $76.40.

Nvidia (NASDAQ:) put in a second bearish engulfing candle yesterday after putting one in on March 8. This was smaller in size and came on much less volume. I have never noticed something like this before, and I am not sure what it means, except for my understanding of the bearish engulfing pattern. I also find it interesting that the candle was formed around the same level as the one formed the last time, around $950.

Interesting and potentially notable, a break of that $850 region likely confirms a double top pattern, so we will need to watch this one closely.

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