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Liquidity Matters, The Fed’s BS Doesn’t

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I didn’t watch Powell’s press conference yesterday. Instead, I followed my twitter feed, where I got the reports, reactions, and impressions of dozens of reporters, analysts, and other observers of various stripes. My reaction to it was predictable. The same old disgust.

These multiple perceptions of Powell’s performance, reinforced my opinion that Powell, and most Fed governors and presidents, are cynical, pathological liars. They will stop at nothing to defend the rigging of the markets to benefit only their cronies and themselves. Meanwhile, those least able or least willing to participate in their game, suffer the consequences.

End of rant.

For our purposes, I remind myself and you, to watch what they do, not what they say. There’s scant evidence that the market anticipates, aka “discounts” the future. There’s lots of evidence that market prices correlate with money flows. In fact, there’s so much evidence accumulated through the years that we would have to be delusional not to recognize cause and effect.

These Composite Liquidity Index reports illustrate that. They don’t tell us anything that we don’t already know, but they serve as a good reminder, as reinforcement. We need to stay focused on what matters! Not the sideshows like the one the Fed put on yesterday, which the Wall Street captured media willing played into.

So what if the Fed says it’s going to reduce its QE purchases? So what if it says that it’s likely to start doing it in November? And so what if they cut by $20 billion per month and stop after 6 months as Powell suggested they might?

Well, ok. One thought is that might coincide with the draining of the RRP slush fund that I’ve pointed out to you in these reports for the past several months. I estimated that the fund would top out at $1.3 trillion, coincident with the lifting of the debt ceiling, probably in early October. Well, here we are at $1.283 trillion in the RRP fund yesterday (9/22).

And all of the headlines are about the looming Federal budget and debt ceiling deadlines.
Something’s happening here. It will get done. Temporary default or not.

Take with a grain of salt all of the predictions of catastrophe if the government defaults. There will be short term dislocations, no doubt, but the politicians will, in God’s good time, pass a budget, and lift the debt ceiling, and the Old World, with all its financial power and might, will step forth to the rescue of the New (with apologies to Churchill).

Lifting the debt ceiling will start the clock on exhausting the RRP slush fund. The catastrophe will come when that fund approaches zero again.

So here we are. The Fed will cut QE. The RRP slush fund will need to be used to absorb the Treasury issuance. If the fund lasts 6 months, which I doubt, then the Fed can follow its $20 billion per month QE cut trial balloon.

But at the end of that time the bond market will collapse, because there won’t be enough money in the financial system to absorb the paper at an equilibrium price. Prices will fall, and will do so continuously, with a concomitant increase in yield.

Or it could come sooner than 6 months. It depends on how fast the Treasury will move to replenish its cash account and repay the other internal funds it raided. If they go low and slow, then they can stretch this charade to the maximum. If they move quickly, then the sheet will hit the fan much sooner. The Fed will not be able to continue cutting purchases for 6 months. It will stop and reverse much sooner.

Not being an insider, I don’t know what the plan is. So again, all we can do, and in fact all we need to do, is watch the data. It will tell us exactly what’s going on at just the right time that we need to know it. This report, and those to come, will show you, with charts and clear explanations (subscribers only), exactly what’s going on and when we’ll need to react .

All will unfold before us in good time. We did not need Jerome Jerry Jaysus Powell, or Janet Yellin’ Yellin to tell us that. We can see the trends for ourselves in the monetary indicators. It’s all there for us to view with our own eyes (subscribers only).

We can predict what they’ll say, and more importantly what they’ll do. But prediction isn’t all that helpful, because, again, the market does not discount. It responds to changes in liquidity, directly and immediately.

On occasion, rarely, it will react to an external shock, like a pandemic. But those events are always temporary. In the end, the market always returns to following the path of liquidity. You’ll see that again, and in the future, in these reports (subscribers only) so that you can act to preserve and grow your capital under the most adverse circumstances.

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When Hope Is Not a Good Thing

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I would call today’s big picture cycle screening data for the mining stocks an unqualified disaster, were it not for the fact that the two longer time frames barely dropped below neutral. Moreover, the short term numbers reached a deep sell side extreme. So all is not lost yet. But another down week would crush any hopes of a near term rebound.

When all feels hopeless is usually when a bottom arrives. Right now feels semi hopeless. Maybe not a good thing.

Today’s mining stocks short term swing trade screen yielded 7 buy signals and 7 sell signals, with 38 stocks rendering no new signals. It’s not a recipe for a trouncing, but also not one that inspires confidence. I looked at the charts of the 7 buy signals and the setups promised no more than a dead cat bounce. So I let the dead cats lie.

The last 3 of the picks from August 24 got stopped out last week. The 3 new picks were all losers on the week, but the charts are not broken. At least not yet. There’s still still a reasonable chance of a rebound. I have added stops to those, just below support levels. The table and charts are in the subscriber version.

As for the metal itself, it looks set up for a little bounce here that should carry back to xxxx-xxxx (subscriber version). Then we’ll see. If they hang around up there, it would be a good sign that the worst is over. An immediate rollover would not be.

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Sell Signals Again Have The Edge From Friday’s Swing Trade Screen

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This Friday’s screens had 25 buys and 29 sells (including one buy on an inverse ETF). That compares with the previous Friday’s 7 buy signals and 42 sell signals. This is the third straight week with a majority of sell signals. 1344 stocks met the initial screening criteria. Only 4% of them rendered signals on Friday. The rest were already moving in the direction of the most recent signal.

We’ve had plenty of advance warnings for the current weakness.

9/13/21 But there are hints of a downturn that suggest that it’s finally time to actively consider adding shorts to the list, something that I’ve assiduously avoided for the past 18 months.

9/13/21Again this week, one of the interesting things in these signals was that 9 of them were bearish signals on fixed income ETFs. Last week it was ten. They’re not movers and not really candidates for trades, but it squares with our liquidity analysis that the bond market will be a bad place to be from here on.  

9/13/21 Likewise there were numerous sell signals on REITs. That’s another bearish sign for not just the group, but for fixed income and the stock market. I don’t like to trade REITs. They tend not to trend, but to jump around like rangebound Mexican jumping beans. But the bearish indications are beginning to coalesce into a theme that fits our outlook.

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Last week I put a toe in the bearish waters with 3 shorts. I wanted to wait for a bounce to add more. The market may not be so kind as to accommodate that. When is it ever?

Meanwhile, 3 buy side picks are hanging on. I’ve adjusted the stop levels on those.

In addition, I’m adding two shorts to the list this week, XXX, and XXX, (subscriber version only) as of the 3 PM price on Monday.  Delayed entry time may or may not be a tactical winner, but with Monday morning’s broad market weakness, a mid-day bounce could give a better entry price. It’s a crapshoot, which, as always, is up to your judgment if you are watching and trading these picks.

Last week was another losing week. I did not have enough shorts, with only 3 short picks to start on Monday, and one went the wrong way.  Three more buy side picks got stopped out after 7 were stopped the week before.

Including both those stopped out and those left open, the list had an average loss of 1.1% with an average holding period of 16 days. That was slightly worse than the prior week’s loss of 0.9% with an average 18 day hold. Several weeks of small gains have been wiped out in this transitional period. I need to do better.

Charts and table of existing picks below (subscriber version only).

The strategy and tactics opinions expressed in this report illustrate one particular approach to trading. No representation is made that it is the best approach, or even suitable for any particular investor.

These picks are illustrative and theoretical. Nothing in this report is meant as individual investment advice and you should not construe it as such. Trade at your own risk. 

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Stock Market on the Brink

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Cycle structures and conventional technical indicators are now on the cusp of intermediate term signals. The setups suggest that if those signals are forthcoming this week, they’ll be valid. This report illustrates what would be required to trigger those signals (subscriber version only).

All cycles are now in gear to the downside. Short term cycle projections have been reached, but a 13 week cycle projection points to xxxx (subscriber version only).  A weak bounce this week, or no bounce, would suggest that that target is still in play.

Multiple cycle channel support lines are clustered around xxxx (subscriber version only). That’s a likely place for an intermediate low to develop after one more tests or minor penetration, in the next 1-4 weeks.

On the third rail chart there’s a bit of air below xxxx (subscriber version only).  That next support line will be at xxxx on Monday, rising by 2.75 points per day (PPD) to around xxxx on Friday. However, if the market rebounds on Monday, it would be back within the uptrend channel that has continued the move since May. That line rises from xxxx to around xxxx this week.

On the weekly chart, the market is resting on the previously broken long term uptrend line at xxxx (subscriber version only). If the week ends below that, then a test of the support region around xxxx would become likely over the next month. If those break, it would suggest major top formation. Conversely, if either the current trendline, or the cluster below, holds, then the uptrend would still be intact.

The long term cycle projections of xxxx to xxxx (subscriber version only) are still viable, for the time being, with highs due between now and next year. That outlook could change this week.

On the monthly chart, the S&P 500 needs to break xxxx (subscriber version only) in September to signal an end to the uptrend.

The long term cycle momentum indicator remains bullish. For now.

Cycle screening measures broke the intermediate term bullish trend, setting it back to neutral. But the aggregate measure hit a line that suggests a short term bottom. If it breaks, then the bigger picture turns bearish.

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These reports are not investment advice. They are for informational purposes, intended for an audience of investment and trading professionals, and other experienced investors and traders. Chart pick performance changes week to week and past performance may not indicate future results, as you know. Trading involves risk, and these reports assume that you understand those risks and manage them according to your tolerance. 

Get Ready for the Coming Bond Market Bloodbath

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Janet Yellen has now confirmed that the Treasury will run out of money in October, as we already knew from our tracking of the data.  Congress will be forced to raise the debt ceiling. Treasury supply will mushroom at the same time as the Fed begins to cut its market support operations. The RRP slush fund will affect the timing of the coming disaster. But we know its coming and we have a good idea of when.

Meanwhile the BLS has fomented a completely false picture of inflation. I explain that in this report. It’s blatant.

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Constructive Signs for Gold Digging

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The cycle picture is hazy. The table at left (subscriber version) is my best guess. A short term low is due, but at a lower projection. The would-be 13-17 week cycle up phase has gone nowhere, despite a new projection that points higher. If it doesn’t get out of this range soon, it would suggest the possibility of a wicked down phase ahead. If the price holds above the May-August downtrend line as shown on this chart (subscriber version), that would be constructive

HUI gold stock index has been rangebound at the lows for the past month. It still needs to clear xxx (subscriber version) to complete an intermediate term bottom. If successful, it would indicate a new 6 month cycle up phase. The measuring implication would be around xxx (subscriber version).

In the cycle screens of the mining stocks, short term cycles got crushed but the two longer time frames held up ok over the past week. That suggests a pullback in a longer up phase. It tells us to stay the course for now with any longs that haven’t been stopped out, and keep an eye out for new entries.

In the chart picks screen, today’s screen yielded 20 buy signals. There were 4 sell signals. This is a nice balance from a bullish perspective. Last week there were 43 sell signals which was a red flag, but as I wrote then, “The intermediate trend structures still hold the prospect of further gains.” Ditto this week. On reviewing the charts of the stocks with buy signals, I found a few that I liked and will add to the list as buys as of today’s opening print. They are XX, XXX, and XXX. See charts below (subscriber version).

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Lots of Sell Signals Again From Friday’s Swing Trade Screen

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This Friday’s screens had just 7 buys and 42 sells. That compares with the previous Friday’s 8 buy signals and 48 sell signals. 1211 stocks met the initial screening criteria. 96% of stocks are either already moving in the direction of the most recent signal, whether up, down or sideways, mostly sideways. As was the case last week, there’s still no real sign of thrust in either direction.

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But there are hints of a downturn that suggest that it’s finally time to actively consider adding shorts to the list, something that I’ve assiduously avoided for the past 18 months.

Again this week, one of the interesting things in these signals was that 9 of them were bearish signals on fixed income ETFs. Last week it was ten. They’re not movers and not really candidates for trades, but it squares with our liquidity analysis that the bond market will be a bad place to be.

Likewise there were numerous sell signals on REITs. That’s another bearish sign for not just the group, but for fixed income and the stock market. I don’t like to trade REITs. They tend not to trend, but to jump around like rangebound Mexican jumping beans. But the bearish indications are beginning to coalesce into a theme that fits our outlook.

Healthcare was another theme that kept cropping up on the sell side.

Despite all the sell signals, I didn’t see many charts that looked like a setup for a big decline right here. I did find a couple that were interesting, however, and am taking a bite on xxx, xxx, and xxx (subscriber version only).

Maybe after the next bounce there will be more obvious shorts. I’ll put a toe in the water here, leaving the list balanced. I want to be patient until I see a clearer path to the downside before adding more shorts.

Last week was not a good week. Seven buy side picks got stopped out. Only two of them had gains. Including both those stopped out and those left open, the list had an average loss of 0.9% with an average holding period of 18 days. That wiped out the prior week’s 1.5% average gain on an average holding period of 12 calendar days.

The premature failure of buy signals is a sign that the market is probably reversing. It’s time to start looking for shorts more actively. We’ve been avoiding them until now.

Charts and table of existing picks below (subscriber version only).

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Nothing Has Happened Yet

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The 10-12 month cycle has now signaled that the expected top in this time frame is forming. But with longer cycles still in strong up phases, I’ll start with the assumption that the 10-12 month cycle will stay flat. That would only suggest a decline to xxxx (subscriber version only).

The 6 month cycle down phase is also under way, but it too could stay flat. The 13 week cycle, which had been trending, is uncertain. It’s due for a xxxx (subscriber version only) this week.

Useless Banking Indicators Except for One Giant Red Flag

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I started to wonder how the banking indicators were looking lately. I’ve looked at the charts this morning. In updating this for you, I’ve again attempted to minimize the verbiage here. The charts are bad enough.

When it comes to banking indicators it’s best not to suffer paralysis by analysis. We’re seeing the same crazy insane, stuff, month after month year after year. As long as the Fed backstops this, who knows how long it can go on. Most of this data only reconfirms how historically extreme these conditions are. It tells us nothing about the timing of the next “adjustment.”

Besides, the markets will crack first and take the banking system down when they do, not the other way around.

So consider this report an interesting diversion. I post it because I did the work, so I may as well publish it (Sarcasm).

But I did come across one chart that appears to have timing implications.

Bank deposits.

The correlation with stock prices is stunning. But it gets even more interesting when expressed as a ratio of the S&P to deposits. That’s telling us that right now is a good time to at least get ready to dump stocks, if not do it now. This chart and the rest, all in the subscriber version of the report.

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Gold’s Setup Has All Kinds of Potential

This report tells what the potential is, and how to spot its likely attainment.

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