“When the facts change, I change my mind. What do you do, sir?” – John Maynard Keynes

As we have been discussing for months now, economic data has peaked, growth is slowing and liquidity remains a massive concern. Pretty much all asset classes are under-performing cash, credit is in trouble, Banks continue to be unable to catch a bid yet markets remain in a very complacent mode, convinced that the Santa rally is around the corner and that new all time highs are inevitable.

Naturally, everything can catch a bid, especially in this low liquidity algo-driven environment. However, unless something drastic changes, sooner or later, markets will have to wake-up to this reality and reprice. Clearly, this has already started under the surface and we continue to see a lot of selling into recent strength but the wake-up call still hasn’t reached everyone.

Once again, keep an eye on RTY and the Banks. That’s all you need to get a feel for how we are trading under the surface and if any of the intraday rally attempts could have any real chance of sticking.

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