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Gold Lines Up Potential Bottom

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Gold shows signs of bottoming, but there’s a key parameter that must be met. Short term cycle projections point to xxxx-xxxx. (subscriber version).

Meanwhile our mining stock swing trade pick list posted a solid performance last week, and shows good potential for more gains. But we need to allow for pullbacks as they build bases. See table and charts (subscriber version).

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Patience Pays Off With Swing Trade Chart Picks This Week

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This Friday’s screens had 24 buys and 25 sells. That compares with the previous Friday’s 25 buy signals and 17 sell signals. Friday’s strength in the market averages was neither broad, nor monolithic.

1273 stocks met the initial screening criteria in the current screen. 3.8% of them rendered signals on Friday. The rest were already moving in the direction of the most recent signal.

Current picks are summarized in the table below. 5 were still open, with an average gain of 1.3% on an average holding period of 17 calendar days. I’m closing out one loser, using the opening price Monday for tracking purposes.

I’m again mostly foregoing stops. My thought is that if one takes a hit, I’d look to exit subsequently. There are enough selections that risk is spread sufficiently so that I can give room for the ones that are going to run the right way, room to do so. That should offset losses on the ones that don’t go as expected.

After reviewing the charts, I chose 3 to add to the list this week. Surprisingly, only one was a buy. The other two were shorts. They’re shown on the table below (subscriber version only). All charts of the new picks and open picks are below. (subscriber version only)

Table

Charts

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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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Bullish Intermediate Term Omens

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Cycles The market confirmed the prior indications of xxxxxxx (subscriber version only) in cycles up to 13 weeks, as well as a probable 6 month cycle xxxx.

Initial short term cycle projections point to xxxx (subscriber version only), which would be a xxxx xxxx xxxx. There are no projections yet for cycles of 13 weeks to 6 months, and no indication yet of a 10-12 month cycle upturn. That will be signaled by what happens when the previous high of 4550 is tested.

On the third rail chart there now appears to be a flat intermediate channel. Support is at least week’s low of 4279. Resistance is indicated at the September high of 4546. A measured move indication coming out of this upside reversal points to xxxx-xxxx (subscriber version only).

On the weekly chart, updated long term cycle projections as of October 10, 2021 show targets ranging from xxxx to xxxx for cycles of up to 7 years (subscriber version only).

Long term momentum indicators suggest xxxxxxxx for xxxxx (subscriber version only). They normally form negative divergences long before price peaks.

On the monthly chart, the uptrend channel remains intact. SPX would need to end October below 4275 to break the uptrend channel. If the uptrend stays intact, the market could head for a very long term resistance trend at xxxx (subscriber version only).

The monthly long term cycle momentum indicator remains bullish.

Cycle screening measures have confirmed the uptrend and given an intermediate term xxxxx (subscriber version only) xxxx by xxxxxxx an 11 month trend of declining peaks.

Swing trade chart picks will be posted Monday morning.

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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. 

Our Outlook On the Money

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Visibility into the near future has been pretty good lately, so I’ll start with a review of what we expected, where we are now, and any changes likely ahead.

9/29/21 Secretary Yellen Says that the Treasury will run out of cash on October 18. Sounds about right.   

When the Treasury runs out of cash, Congress will be forced to raise the debt ceiling. When it does, look for a big increase in Treasury issuance.

They didn’t quite get to the zero Treasury balance. The widespread predictions of disaster by the “experts” proved too much for the politicians to bear, for them to allow a test of  zero Treasury cash.

But they only kicked the can to December by raising the debt limit by $480 billion. That’s only supposed to last until December 3, according to news reports. So we’re not finished here. We’re going to go through this exercise again in about 7 weeks.

Meanwhile, we are getting a preview of the expected increase in Treasury issuance. $110 billion in new T-bills will be issued next week. Then $109 billion in new coupon paper is tentatively scheduled for the end of the month.

I’m still expecting the Fed’s RRP slush fund to cushion the blow of that new supply. It is the ready cash that should fund the absorption of the new paper. But we really don’t know what the big money managers will do. This is Brave New World stuff. What if the money market funds decide they like the Fed’s paper just as much as the US Treasury’s? If even a few of them sit tight with RRPs instead of buying the newly issued T-bills, we could start to see xxxxxxxxxxxx xxxxxxxxxx xxxxxxxxxxx (subscribers’ version). I’d expect that to show up first in xxxxxxxxx xxxxxxx  on T-bill rates.

Again, we won’t know until we see the first new T-bill settlement on Monday, and see how much comes out of the Fed’s RRP fund.

9/29/19 Given the current political climate, a government shutdown is a given. A delay in lifting the debt limit, and a technical default by the US government is a definite maybe. It would almost certainly be disruptive to the markets in the short run, but in the longer run, the default will be cured, and the effect will fade into the background.

This did not happen. Yet. All they did was reset the clock. They have time to avoid a crisis, but will they? No doubt the news will be misleading until the deal is done. Forget about what they say. It could cause us to anticipate and act on a scenario that won’t come to pass. Watch what they do when the rubber hits the road. We’ll have time to react if we’re paying attention.

9/29/21 The Fed’s RRP slush fund is now nearly $1.5 trillion. That will fund the new supply tsunami for a few months. Everything could look ok during that time. The Fed will be praised for its brilliance, and the markets will have an uneasy peace, if not a resumption of bullish trends.

However, as that fund begins to run out, the cracks will appear. And once that fund is drawn down to zero, the ingredients for a massive dislocation in the markets will be in place. The bitter fruit of QE, and tapering QE, will be tasted.

The timing of that is uncertain. It depends largely on how fast the Treasury wants to replenish the funds it drew down or raided to avoid the debt ceiling.  

All of the above remains true, as they’ve only pushed back the Drop Dead Date.

This month, Fed QE has been covering, and will continue to cover 104-107% of new Treasury issuance, until the debt ceiling is lifted.

That should have been a short term bullish factor for bonds and stocks, as it pumps cash into the dealer and other institutional accounts that had been the holders of the T-bills being redeemed. But it hasn’t gotten traction. Smart money is getting out ahead of what they know is coming. The China Evergrand situation plays a role in generating margin calls that trigger liquidation pressures in other assets held by holders of Evergrand paper. That includes especially, highly liquid US assets.

Another factor pressuring prices is record corporate debt and equity issuance.

That’s partly on the money. There’s still an excess of QE over new supply. That will go back to a normal or below normal coverage ratio in the weeks ahead. We should start to see xxxxxxx xxxxxxxx (subscribers’ version) for stock and bond prices when that happens, especially with the increase in Treasury supply, and double especially if the Fed actually, really, no kidding, begins to taper QE in December.

There’s a lot more in this report on what to expect, including charts showing how we got here, and why we’re going where we’re going. I also post my idea on what would be a good way to deal with it successfully (subscribers’ version).

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Gold Stuck in the Middle While Miners Look Promising

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Gold has been in suspended animation for the past two weeks. Cycle indications are conflicting and motionless. The signal for the next move, even a small one, would be a breakout from the current range of xxxx-xxxx (subscriber version).

Meanwhile our mining stock swing trade pick list perked up last week, and shows good potential for more gains. But we need to allow for pullbacks as they build bases. See table and charts (subscriber version).

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Deadly Ambiguity With Big Profit Potential

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Rangebound markets tend to generate a lot of whipsaw signals that are just noise. I call rangebound markets “meat grinders” for a reason. They tend to crush systems designed to find 3-6 week swings. I try to avoid the worst of that, while allowing picks room to move around before breaking out in the expected direction.

What makes rangebound markets interesting is that when the market finally does break out, one way or the other, a big move tends to follow. Furthermore, the initial move out of the range tends to be explosive. To take advantage of that, it’s necessary to take positions in advance in charts that appear to have potential to do that, even though many won’t. The idea is that one or two big movers will more than compensate for the ones that bleed.

1357 stocks met the initial screening criteria in the current screen. 3.1% of them rendered signals on Friday. The rest were already moving in the direction of the most recent signal. There were 25 buys and 17 sells. That compares with the previous Friday’s 56 buy signals and 7 sell signals. This marks 2 straight weeks with more buys than sells after a string of four Fridays with a majority of sell signals.

All charts have a measure of ambiguity, especially in these rangebound environments. This week’s degree of ambiguity seemed even greater than usual. As I reviewed the 52 charts with signals, I saw a lot of “on the one hand – on the other hand.” I ended up choosing none of them. I’ll stand pat with what we currently have on the list.

Current picks are summarized in the table below (subscriber version only). I’m foregoing stops this week to give room for something to happen one way or another. My thought is that if one takes a hit, I’d look to exit on the recoil. But I want to give room for the ones that are going to run the right way, room to do so.

Table (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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Head and Shoulders Above

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Cycles up to 13 weeks appear to have turned up. The 6 month cycle also should be turning but indicators are less clear. With cycles of up to 13 weeks turning up, there’s room to move to xxxx xxxx xxxx xxxx xxxx (subscriber version only). If the 6 month cycle is also turning as seems likely, then the market should break out xxxx xxxx xxxx xxxx, with a target of xxxx (subscriber version only). The likely time frame would be Q1 2022. However, a stall and rollover at either xxxx or xxxx could lead to a downside resolution. Given the longer term structures, I’m leaning toward xxxx xxxxx xxxx , but have antenna up for any sign of change.

On the third rail chart the market has set up a beautiful head and shoulders top pattern, which may now be forming a second right shoulder. Or it could break the pattern right here. The pattern is perfectly symmetrical in price and time. What does that mean (subscriber version only)?

On the weekly chart, updated long term cycle projections as of October 10, 2021 show targets ranging from xxxx to xxxx for cycles of up to 7 years (subscriber version only).

Long term momentum indicators suggest xxxx xxxx xxxx (subscriber version only). They normally form negative divergences long before price peaks.

On the monthly chart, the S&P 500 the uptrend channel remains intact. SPX would need to end October below xxxx to break the uptrend channel. If the uptrend stays intact, the market could head for a very long term resistance trend at xxxx (subscriber version only).

The monthly long term cycle momentum indicator remains bullish.

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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. 

Booming Tax Revenues, Overheating Risk, and The Real Crisis Starts Now

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Federal tax revenues are still growing rapidly, signaling an overheating economy. The debt ceiling will be lifted. And the Fed will begin reducing its QE purchases.

9/3/21 These three things coming together as soon as October will pose a grave threat to the Treasury market, to short term interest rates, and ultimately to the stock market. 

In this report, we’ll focus on the threat to the bond market. Just keep in mind that stocks won’t be immune. I cover that perspective in the Technical Trader reports, but I will refer to them in these reports at critical junctures.

In view of Friday’s BLS nonfarm payrolls report, I just want to remind you that tax data is fact. The BLS jobs data is fiction. It’s constantly repainted after the fact to represent past reality, but it is not current reality. BLS jobs estimates are SWAGs based on severely flawed methodology. They rarely accurately represent actual current conditions, and then only accidentally.

If you want to play the jobs growth guessing game,  the tax data for September showed that the pace of growth in September was 16% stronger than the August number. However, given the BLS’s statistical massagery, their number could be anything. This is really just a game of chance each month.

The August BLS nonfarm payrolls reported increase was 235,000. If that was accurate, then the gain for September would be 235,000*1.16=  273,000. According to Bloomberg, the current consensus for that number is +455,000. But the BLS estimate for August should be revised upward.

Note post BLS release:  It was. The change for August was revised up by 131,000, from +235,000 to +366,000.” Adding that 131,000 to the reported gain of 194,000 = 325,000. That’s still an overstatement relative to the tax data reality. They’ll need to revise down next month. Meanwhile, clueless economists will revise their October estimates down even more, and the stupid guess the number game will go on. 

Furthermore, the jobs data is irrelevant for our purposes. It is tangential to the knowledge we need to understand and successfully trade the markets. Supply and demand rule the prices in the securities market, just is they rule the commodities markets, real estate, labor, and the day to day prices of the things we buy. Each market has its own forces of supply and demand.

For Treasury prices, and their inverse, yields, we’re interested in the supply of demand for Treasuries. There’s no need for secondary or tangential data. We have the primary data. We know the near term supply outlook, because the Treasury publishes it in advance. We can estimate how it might change because we have the real time data on Federal revenues and outlays, and hence the budge deficit and future issuance needs.

We don’t need the silly exercise of pretending to know how many jobs were created each month. We have the withholding tax data. That’s the primary data that tells us how much revenue the Federal Government is taking in, and whether it’s increasing or decreasing.

Withholding tax collections strengthened in September. While more revenue would normally reduce supply, we don’t know where spending will go. That will matter in the longer run.

In the shorter run, the big unknown is whether there will be only a temporary fix for the debt limit, as opposed to something longer term. If it is only a short term fix, we may see accelerated Treasury issuance. That would draw down the Fed’s RRP slush fund much faster than probably would have been the case under a long term lifting of the debt ceiling.

That would be more bearish, sooner.

Note: After I wrote that Congress did agree to a short term fix, with momentous implications. 

9/3/21 The next problem is that the Federal Government should run out of cash in early October. At that point, it must raise or suspend the debt limit. The Treasury will then begin issuing a torrent of supply to replenish the accounts it raided under the “extraordinary measures” it has undertaken since July 31 to avoid exceeding the debt limit.

The pile of cash in the Fed’s RRP program will act as a slush fund to buy the new T-bill issuance. There are a number of moving parts to the outlook for what happens then, including the mix of T-bills versus coupons in the new issuance schedule. Likewise, we don’t know for sure how holders of RRPs will react to any of this. We have no historical precedent to guide us.

The impacts could vary. Either short term rates, or bond yields could xxxxx xxxxx (subscriber version only). We should see the first hints of market impacts when xxxxxx xxxxxx xxx xxxxxx . But one way or another, once the RRP cash xxxxx xxxxx xxxxx (subscriber version only), the real problems will mushroom.

By then it could be too late. It’s possible, even likely, that significant market damage will already have occurred. Therefore the time to act is now. If I owned long term bonds I’d xxxx xxxxx xxx xxxxxx (subscriber version only). Or I’d need to be willing and able to hold to maturity while suffering the loss of purchasing power that rising inflation would entail.

Meanwhile, I would keep a close eye on stock market technicals for any sign that it’s time to stop trying to ride that bubble wave any further.

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Five Mining Picks to Swing

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Short term cycles in the metal are in up phases, but they’d better get more traction or it could mean more trouble ahead. There’s no confirmation of an upturn in longer cycles yet.

But the screens of the mining stocks offered more positive signs, and I picked 5 charts to put on our swing trade chart pick list this week (subscriber version).

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Avoid the Meat Grinder, Pick Only Wieners

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This Friday’s screens had 56 buys and 7 sells. That compares with the previous Friday’s 16 buy signals and 28 sell signals. This breaks a string of four straight weeks with a majority of sell signals in Friday screens.

1376 stocks met the initial screening criteria. 4.6% of them rendered signals on Friday. The rest were already moving in the direction of the most recent signal. Likewise, rangebound markets tend to generate a lot of whipsaw signals that are just noise. It’s important to look for and try to avoid that when choosing potential swing trades.

With that in mind, I chose 4 charts to add to the list. They are xxx, xxx, xxx, and xxx (subscriber version only). I’ll track those as of Monday’s opening prices.

Last week reversed a string of 4 straight losing weeks, with an average gain of 2% on an average holding period of 18 calendar days.

Rangebound markets generate lots of whipsaw signals, which are rough on a system designed to ferret out 3-4 week swings. I’ve called them meat grinder markets. I put out a lot of hamburger in September. I’m working on avoiding that while keeping toes in the water to catch the next wave.

Overall performance is summarized in the table 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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