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Month: July 2020

Short in the Short Run, Long in the Longer

Short term cycles are in down phases. There are a couple of clear parameters to watch for signs of whether this will get worse or not. Intermediate cycles appear to be topping out. Again, there are clear parameters to watch for confirmation.

But the long term indications remain bullish, with a brand new price and time projection for the bull market high. It won’t make bears happy, but our chart picks still have 4 shorts along with 7 longs. The bull is no longer a monolith, but it only takes a few big stocks to carry the market averages higher.

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Light Treasury Supply, Even Paydowns, and Ongoing QE – Still Bullish

Fed QE and Treasury supply remain roughly in balance. The Fed is still funding most, if not all new issuance, either by direct purchase of Treasuries, or indirect funding via purchases of MBS. Meanwhile delayed tax collections are creating a July cash windfall for the Treasury. It’s all bullish for the next two weeks.

But then it gets different. Here’s why, and what to do about it.

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When Deleveraging Isn’t a Good Thing

Several banking indicators have exhibited a mild trend of deleveraging that has now persisted over two months. What we don’t know yet is whether it is just a correction of overborrowing during the initial phase of the pandemic and the Fed’s response.

Or is it the beginning of a persistent trend of deleveraging? That’s important because if it is the latter, it would have the power to change the direction of stocks

That could be a good thing over the long term. But it could also lead to another accident in the shorter term, over the next few months.

Unfortunately, so many aspects of this are uncharted waters for us. We can’t look at history and say, oh, this is just like that, or even something like that. We must take our best shot based on the logic of the current circumstances. Another problem is that, while economists assume that humans are rational actors, we know that that’s not often the case. We have to figure out how humans are most likely to behave, rational, irrational, or otherwise.

Ultimately that boils down to divining the trends in the data as it exists. Let’s just look closely at what we know and ask a few questions. Is the current trend persisting? Are there conditions on the horizon that might lead to change? Is change already underway? What are the signs? How will the Fed respond? And more importantly, how long will it take the Fed to respond.

Fortunately, the last two questions don’t need an answer. Because the Fed doesn’t know what it will do until it does it, neither does the market. And it’s likely to take the market longer to figure it out than it takes us, if we’re paying attention. Which we are.

Here’s what we know and what to do about it.

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Jack Be Nimble, Jill Be Quick, This Market’s Not a Monolith

Short term and intermediate trend channels are heading up, but it’s tenuous and there are trading opportunities on both sides of the ledger. We look at trigger points that would signal a big move, and point out a few stocks that look poised to ride the next move.

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