| | | | Are Retail Traders Tapped Out?
First, don’t miss today’s Daily Chart Setup trade idea down lower in this newsletter.
The stock market just hit all-time highs, but beneath the celebration lies a dangerous cocktail of record margin debt and Wall Street's newest creation: 5x leveraged ETFs that can wipe out your entire investment in a single day.
We break down the leverage bubble, explain why retail investors are gambling instead of investing, and reveal the smart money moves to profit from — or protect yourself against — the inevitable hangover.
Come join me as we dive in and see what’s moving!
Plus, as always, we have stocks popping and dropping so come find out what is moving this morning as I look for stocks and do some live premarket analysis on SPX, SPY, NDX, QQQ, Russell, IWM and other stocks that are potential plays for the day.
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The Fed's QT Diet Is Ending: Wall Street Banks Have Suddenly Changed Their Tune
Wall Street's biggest banks just did something remarkable — they completely flipped their forecasts on when the Fed would end quantitative tightening.
We're talking about Goldman Sachs (GS) and JPMorgan (JPM) suddenly claiming the Fed will end QT at next week's FOMC meeting, when just weeks ago they were saying December at the earliest, maybe even Q1 2026.
JPMorgan even titled its note something like "When the facts change, I change my mind" — which honestly might've been more accurate as "we finally noticed all the flashing red lights."
Because here's what's actually happening in the financial system's plumbing, and it's not pretty.
The System's Warning Lights Are All Flashing Red
Bank reserves have dropped below the critical $3 trillion threshold, and the Fed's reverse repo facility — which held over $2 trillion at its peak — is basically empty now. Even more concerning, we're seeing emergency draws on the Fed's lending window, around $6.6 billion, and overnight lending rates between banks are spiking.
If you were trading in September 2019, this should give you flashbacks. That's when the repo market essentially seized up and the Fed had to step in with emergency measures.
We're seeing similar stress signals now.
For two years, the Fed's been on this QT diet — letting bonds mature and draining cash from the system to fight inflation, and the balance sheet is currently around $6.6 trillion.
The Counterintuitive Reality About QT and Market Performance
Here's where it gets interesting, and honestly a bit weird...
Over the past two decades, stocks have actually performed better during QT periods than during QE — quantitative easing, when the Fed's actively printing money and buying bonds.
I know that makes zero intuitive sense. You'd think flooding the system with liquidity would juice stocks, and draining it would hurt them. But data is data, even when it defies logic.
The real action happens at the transition points. When QT ends and potentially flips to QE, it's like opening the floodgates of liquidity. And the assets that thrive in that environment?
High-beta tech stocks, small-cap companies that need cheap credit, and crypto.
Speaking of crypto, Bitcoin's already sniffing around the $110,000 to $111,000 range (as of Friday evening when this was written). That's happening while the liquidity spigot is still mostly turned off.
What happens when it actually gets turned back on?
The recent sell-off gave us a preview — when liquidity hiccupped, speculative assets got hit hard. Which means they'll be the first to fly when the money starts flowing again.
The question you need to ask yourself is this…
Are you positioned for it? Do you have enough exposure to assets that thrive when money gets cheap again?
With the FOMC meeting next week and the ongoing Trump-Xi (China’s president) dynamics, timing matters.
The Fed's diet is ending. The only question is whether you're ready for what comes next.
Now be sure to join me live at 9:15 a.m. ET for “Morning Monster,” my market-open livestream on YouTube!
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