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Author: Lee Adler

Relentless Rally Reaches Likely Reaction Point

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Yes, a likely reaction point. But that may not mean much. Cycle projections point higher still (subscriber version only)..

The 10-12 month cycle has entered an up phase, with ideally xx-xx (subscriber version only) months to run. There’s no projection on the S&P yet but the Qs look xxxxx friendly.

The 6 month cycle is early in an up phase. There’s no projection yet. The 13 week cycle is in an up phase. The projection now points to xxxx xxxx down from xxxx (subscriber version), last week.

Short term cycles didn’t bother with their down phases that were due. They’re trending. There’s an 8 week cycle projection of xxxxx.

On the third rail chart support is around xxxxx on Monday, rising to xxxxx on Friday. They’d need to break those to have any shot at any downside.

Trend resistance is rising, starting the week at approximately xxxxx and rising to around xxxxx.

On the weekly chart, updated long term cycle projections as of October 10, 2021 show targets ranging from xxxxx to xxxxx for cycles of up to 7 years. The SPX is above the 18 month cycle channel extension, suggesting that the long term trend is accelerating toward a possible target of xxxxx at the end of November.

Long term momentum indicators suggest higher for longer. They normally form negative divergences long before price peaks.

On the monthly chart, the market uptrend channel lower bound is at 4300 in November. They’d need to break that to show any sign of possibly ending the bull market. Clearing the long term trendline around xxxxx would set a course toward xxxxx in November and possibly xxxxx in December or January. The monthly long term cycle momentum indicator remains bullish.

Cycle screening measures remain bullish.

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. 

Why Jerome Powell Had a Frog In His Throat

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Available at this link for legacy Treasury subscribers.

Did you notice in yesterday’s press conference how Jerome Powell kept clearing his throat. He was apparently choking on the vomit of his own double talk. The lies, self contradiction, and obfuscation were  breathtaking. This man has no conscience. But then, he’s a central banker. What should we expect.

It’s a good thing that Powell doesn’t own a big bond portfolio.

Well, actually, he does. A lot of munies. A lot of real estate funds, and lots and lots of stock funds. But he makes policy to benefit American workers, who can’t afford to buy houses from the real estate ETFs that Powell owns. Supposedly.

That will be the extent of expressing my disgust with yesterday’s spectacle. The purpose of this report is to review the state of real time tax collections as they accurately show what the US economy is actually doing, and to relate that to the unusually important twin pieces of news that came out yesterday. One was the TBAC schedule for the first quarter of 2022, and the other was the Fed’s taper announcement.

The Fed plans to cut $15 billion a month from their purchases until they get to zero net purchases next June. It’s no surprise that at the same time, less Treasury issuance is forecast. The TBAC says that issuance will be cut in half in Q1.

We knew that the strong tax collections would cause issuance to begin to shrink. We knew that the Fed would only taper QE when Treasury issuance began to decline. There’s no surprise in any of this.

One Bloomberg story highlighted the fact that the Fed’s taper was simultaneous with the Treasury “tapering” issuance. There’s just one problem. While issuance will be cut in half from Q4 to Q1, assuming that the next lifting of the debt ceiling doesn’t screw that up, the Fed’s purchases would go to zero under their plan. At the same time, half of the current level of Treasury issuance still amounts to $150 billion per month on average.

Let me say this about that.

The market cannot absorb $150 billion a month in new issuance at current price levels. Bond prices will crater before the Fed ever gets remotely close to zero QE. In fact, just 2-3 months of reduced QE might be all the market can bear.

We know that for the past dozen years with QE, the Fed has funded 85-90% of Treasury issuance month in and month out. They’ve done it with a combination of outright purchase, and indirect funding through cashing out dealers via MBS purchases.

Yellen tapered for a year. Treasury yields soared. Powell came on the scene, choked, stopped tapering, and soon started printing again like there was no tomorrow.

They’ve suppressed bond yields as a result. They have screwed yields to the floor, screwing risk averse savers in the process.

The mirror of that is that they nailed prices to the ceiling. Most of the world’s wealth is tied up in bonds and real estate. Powell and his cronies benefitted immensely from the Fed’s direct suppression of yields and inflation of bond prices.

When Treasury issuance increased, the Fed increased QE to insure that bond holders suffered no losses, and that the residential and commercial real estate bubbles continued to inflate.

But even with that increased support, the yield on the 10 year has risen from 0.50 to 1.50-1.70. We’re about to see what happens when the Fed cuts its absorption to less than 85%. The Fed says it will be flexible. The taper isn’t on autopilot.

I’ll say. Watch what happens when the 10 year yield explodes past 2%. Let’s see how long they stick with this “taper” while Powell and friends’ personal holdings of bonds and real estate funds crater.

We have a couple of wild cards in the mix. These include the xxxx xxxx xxxx (subscriber version only), which is already again beginning to stifle issuance. The Treasury returned to T-bill paydowns last week after issuing $254 billion in net new bills since October 15. They’re already running into the new higher debt ceiling, so they have to start paying down T-bills again while they continue to issue coupon (longer term) debt.

So the games will begin again. With that $254 billion that the Treasury raised in T-bill sales, they managed to rebuild the Treasury cash account from around $50 billion to $311 billion as of November 2.

That’s probably enough to hold off the dogs until xxxxxxx (subscriber version only). At that point, we’re going to have to have another debt ceiling increase. Hopefully this one will be more or less permanent, simply because it’s easier to forecast when we know what the limit will be or not be, for the foreseeable future. Otherwise we’ll have to keep floating like a butterfly as we go.

For now there are things in place that will buy a lot of market shenanigans for a few months. They include the $311 billion in the Treasury account, the presence of the xxxxxxxxxxxxxx (subscriber version only),, and the $1.35 trillion still sitting in the Fed’s RRP slush fund.

The day of reckoning is not today. It probably won’t be xxxx (subscriber version only), because they get a xxxx xxxxxx xxxxxxxxx xxxxxxxx (subscriber version only), that xxxxxxxx xxxx. It might be xxxxxxxx, or xxxxxxx, or xxxxxxxx. I’d guess closer to the later part of that period, but it all depends on whatever develops day to day. That’s why we track this data. We’ll see the changes coming in time to act.

The smart money has already been tiptoeing out the side door. We see that in the 10 year yield bumping up toward the highs again. That’s what I’d key on. I’ve said for months that I don’t want to be holding Treasuries or longer term fixed income investments. That doesn’t change.

Assuming that the 10 year yield does break out above xxxx (subscriber version only), that’s where I think we’ll really start to see the wheels come off. First in the bond market. But down the road in stocks too. It may not be an immediate worry, but at some point in xxxx xxxxxxx xxxxxxxx xxxxxxxx (subscriber version only), it will be.

The technical analysis of the stock market itself should tell us when the turn is under way. I wouldn’t short the market stock market heavily until the TA tells me that it’s safe to do that. It hasn’t told me that yet. Although I have a couple of toes in the water in the swing trade chart picks list in the Technical Trader reports.

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Gold Is in Perfect Equilibrium AND Maximum Uncertainty

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Short term cycles are due for pullbacks or consolidations while the 13-17 week cycle remains in an up phase. Its projection has risen slightly to xxxx (subscriber version). Unfortunately however, the 9-12 month cycle indicators are weakening again, which doesn’t bode well for this up phase. The uncertainty will persist for as long as gold remains locked in the xxxx-xxxx range(subscriber version).

The depth of last week’s pullback leaves the strength of the 6 month cycle up phase in the mining stock index in doubt. The chart shows the parameters we need to watch (subscriber version)..

Today, there are 7 buys and 1 sell from the swing trade screens of 52 gold mining stocks. This is an uptick after 3 weeks of more short term sell than buy signals, but it’s not broad enough to signal a new upleg.

Current open picks have an average gain of 14.2% and an average holding period of 32 calendar days. I plan on letting these ride through the consolidation phase with the exception of xxxx, which has broken signal lines in the wake of xxxx xxxxx (subscriber version).. . I’ll let it ride as long as it stays above the stop, but if the stop is hit, I’ll remove it.

None of the new buy signals were compelling, therefore no new picks this week.

See table and charts (subscriber version).

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Swing Trade Screens Yield More Sells than Buys Again

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This Friday’s screens had 11 buys and 33 sells. That compares with 15 buys and 40 sells the Friday before.

1238 stocks met the initial screening criteria in the current screen. 3.5% of them rendered signals on Friday. The rest were already moving in the direction of the most recent signal. Despite the preponderance of sell signals, there’s no evidence of broad downside thrust. It is just a narrow pullback/consolidation.

Picks are summarized in the table below (subscriber version only). I will bail out on one of them, XXXX, to possibly revisit at a later date. That will leave 8 on the list. Including the bailee, the list showed an average gain of 4.5% on an average holding period of 20 calendar days.

I’m again foregoing stops. This tactic has paid off recently. It doesn’t guarantee that it always will but my backtesting in the past has shown that stops don’t work. They don’t protect against gap losses, and they take out positions that subsequently recover. More often than not, it pays to wait for the rebound to minimize losses on trades that go the wrong way. The conventional wisdom about stops, like much Wall Street conventional wisdom, is wrong.

In my opinion, the way to control risk isn’t to use stops. It is to spread risk among several positions.
That way, if one takes a hit, there are enough other selections that there’s room for the ones that are going to run the right way, to do so. That should offset losses on the ones that don’t go as expected. And the ones that go the wrong way can still be maximized by using TA to the best advantage for the subsequent exit.

Of course, no trading method is perfect. There will always be losses and drawdowns. For now, these are the tactics and strategy that I’ve decided to run with. This is for informational and entertainment purposes, not individual investment advice. You must do what’s right for you.

After reviewing the charts, I saw nothing compelling. There are no new picks. I’ll sit tight with what we already have which is 5 longs and 3 shorts. The table and charts of open picks are below.

Table (subscriber version only)

Charts (subscriber version only)

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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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Stock Pause That Refreshes

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Short term cycles look to be headed for a breather. But don’t expect much downside.

I must now rate the 10-12 month cycle as xxxxxxx , with a strong possibility that it has begun xxxx xxxx xxxx xxxx (subscriber version only). The 6 month cycle is early in an up phase. The 13 week cycle is in an up phase, with an updated projection of xxxx.

Short term cycles have entered what should be consolidations lasting a couple of weeks. They may manifest as merely a slowing in the rate of advance or a trading range.

On the third rail chart the SPX broke out to a new high and continued its climb in the upper half of its short term uptrend channel. The top of the short term channel starts the week at xxxx and rises to end the week at xxxx.

Above that are multiple intermediate and long term trendlines around xxxx (subscriber version only). If broken the SPX could run to xxxx. or even xxxx..

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. The SPX is above the 18 month cycle channel extension, suggesting that the long term trend is accelerating toward a possible target of xxxx at the end of November (subscriber version only). .

Long term momentum indicators suggest higher for longer. They normally form negative divergences long before price peaks.

On the monthly chart, the market uptrend channel lower bound is at xxxx in November. They’d need to break that to show any sign of possibly ending the bull market. Clearing the long term trendline around xxxx would set a course toward xxxx in November and possibly xxxx in December or January. The monthly long term cycle momentum indicator remains bullish.

Cycle screening measures are in a pullback but remain generally bullish.

Swing trade chart picks will be posted Monday morning.

Technical Trader subscribers click here to download the complete report.

Subscription Plans

Not a subscriber? Get price and time targets, and weekly swing trade chart picks, risk free for 90 days!  

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. 

It Only Takes One House Fire to Start a Conflagration

Subscribers, click here to download the report.` Primary dealers have reduced their long fixed income positions but they have dramatically increased their leverage. On the one hand, they have reduced their risk exposure, and on the other hand, they have increased it.

It doesn’t make much sense on the surface. But the leverage increase appears extreme, and that’s something to note as the government moves toward its ultimate resolution of the debt ceiling. That will allow a tidal flow of Treasury issuance to batter the market. At the same time, the Fed will almost certainly begin to “taper” its bond purchases. In other words, the supply of Treasuries will increase, while the market’s largest source of demand will diminish.

These facts argue for much higher yields and lower bond prices. The short term timing is uncertain. We’ll rely on the technical analysis of the charts for that. But beyond the next couple of months, all the pressure on yields should be to the upside. Which means bond prices will head lower. That could set off a firestorm in not only Primary Dealer inventories, but bank long term bond portfolios as well.

It doesn’t bode well for a neat and clean outcome for the Fed’s tapering attempt. At some point it will be forced to reverse course. But they’ll try for a while. I think that the outcome in the markets will be chaos to the downside in prices.

This report looks at the particulars of dealer positions, financing, and hedges, as well as the profits and capital trends of the big banks in the aggregate (charts and discussion in subscriber version). These aren’t timing tools but give us some idea where the risk of a blowup lies. Then I discuss the technical charts, key benchmarks and strategy (subscriber version).

Subscribers, click here to download the report.`

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FREE REPORT – Proof of How QE Works – Fed to Primary Dealers, to Markets, To Money

Gold Report Glitch

I don’t know if this issue is affecting all subscribers, but I did hear from one of you that it is, and I found that it’s also affecting me, as I attempt to download the latest Gold Trader report. I have a temporary workaround. Just right click on this link to the report and select open link in new tab (or window). That will open the login screen and you can open as usual. If you are a new subscriber, just type your user name and password, and click enter and the file should open. If it does not, email me from the support form and I’ll send you the file directly.

Sorry for the inconvenience! I’m working on getting this fixed ASAP.

Lee

Gold Sets Up for Eventual Breakout

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The 13-17 week cycle now has a projection of xxxx (subscriber version), suggesting that xxxxxxxx xxxxxxxxx xxxxxxxx (subscriber version) . Both the 9-12 month and 15 month cycle indicators are now constructive for a breakout when xxxx xxxx xxxx.

The mining stock index HUI has broken out of an intermediate term base with a measured move target of xxx (subscriber version). Cycle projections don’t point that high yet, but there’s plenty of time in the 6 month cycle up phase for it to happen. Likewise, the 10-12 month cycle seems to have turned up.  

Today, there are 4 buys and 5 sells from the swing trade screens of 52 gold mining stocks. This is a consolidation phase after 26 buy signals and just 3 sell signal three weeks ago. Current open picks have an average gain of 18.5% and an average holding period of 25 calendar days.   I will let these picks ride without stops again this week. None of the new buy signals were compelling, therefore no new picks this week.

See table and charts (subscriber version).

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US Treasury Says, More Beans, Mr. Taggart! – LINK CORRECTED

Apologies for the bad link in this report I posted yesterday! Now corrected!

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The Fed poured $132 billion of QE into the accounts of Primary Dealers between October 14 and 21, the regular monthly MBS settlement week. As a result, we got the usual predictable result of a rally in stocks.

But there was only a weak, late holding action in Treasuries. They sold off for most of the week. That’s understandable, considering that the US Treasury sucked $218 billion out of the market that week after the debt ceiling was lifted.

It will pull another $196 billion out this week. At this rate, they’ll hit the new debt limit by xxxxx xxxxxxxxxx (subscriber version). Then the extraordinary measures game and the political/fiscal brinksmanship will begin anew.

At the same time, the Fed will begin cutting its outright QE purchases, and MBS replacement purchases will also decline because of higher rates and few mortgage refis, and thus prepayments. That would normally be very bearish, but remember! They have a slush fund! The Fed’s RRP account, which currently still holds about $1.4 trillion in cash ready to absorb the flood of new T-bills.

In the context of all this new supply pounding the financial market, the stock market rally was pretty remarkable. Stocks rose despite the fact that there was more Treasury supply than there was QE. True, there’s still plenty of cash sitting in the Fed’s RRP slush fund. As I’ve pointed out, this will cushion and help to absorb the supply hit coming from the US Treasury.

Think of the RRP slush fund as a big pot of beans simmering on the money manager cowboy camp fire. Fed QE adds more beans to the pot. The US Treasury keeps eating mass quantities of the beans. It constantly refills its plate, consumes the beans, and passes the gas into the US economy. It can continue to consume those beans until they’re gone, as in when the RRP fund is exhausted. That will happen in some months, especially as the Fed gradually stops adding beans to the pot (tapering QE).

Or maybe not that long. Maybe some of those money managers tending the pot will at some point will be like Mr. Taggert. In response to the Treasury asking for still more beans, they’ll say “I think you’ve had enough!”

That’s when both the stock and bond markets will get really interesting for bears. Of course in my view, the bond market is already plenty “interesting,” and has been for some time.

Media reports have pointed out that professional money managers are overwhelmingly bearish on bonds, as if that’s some kind of contrarian bullish omen. I hate to be a party pooper, but market consensus is often right for long periods, especially when the facts support it. In this case, the facts support the consensus. So I’m xxxxxxxx xxxxxxx xxx xxxxxxx (subscriber version). Treasuries. I wouldn’t want to hold long term debt in this environment.

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For the rest of the story, including the multi colored charts and discussion that will entertain, delight, and enlighten you about what to expect, and what to do about it, subscribe!

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FREE REPORT – Proof of How QE Works – Fed to Primary Dealers, to Markets, To Money

US Treasury Says, More Beans, Mr. Taggart!

Subcscribers click here to download the complete report.

The Fed poured $132 billion of QE into the accounts of Primary Dealers between October 14 and 21, the regular monthly MBS settlement week. As a result, we got the usual predictable result of a rally in stocks.

But there was only a weak, late holding action in Treasuries. They sold off for most of the week. That’s understandable, considering that the US Treasury sucked $218 billion out of the market that week after the debt ceiling was lifted.

It will pull another $196 billion out this week. At this rate, they’ll hit the new debt limit by xxxxx xxxxxxxxxx (subscriber version). Then the extraordinary measures game and the political/fiscal brinksmanship will begin anew.

At the same time, the Fed will begin cutting its outright QE purchases, and MBS replacement purchases will also decline because of higher rates and few mortgage refis, and thus prepayments. That would normally be very bearish, but remember! They have a slush fund! The Fed’s RRP account, which currently still holds about $1.4 trillion in cash ready to absorb the flood of new T-bills.

In the context of all this new supply pounding the financial market, the stock market rally was pretty remarkable. Stocks rose despite the fact that there was more Treasury supply than there was QE. True, there’s still plenty of cash sitting in the Fed’s RRP slush fund. As I’ve pointed out, this will cushion and help to absorb the supply hit coming from the US Treasury.

Think of the RRP slush fund as a big pot of beans simmering on the money manager cowboy camp fire. Fed QE adds more beans to the pot. The US Treasury keeps eating mass quantities of the beans. It constantly refills its plate, consumes the beans, and passes the gas into the US economy. It can continue to consume those beans until they’re gone, as in when the RRP fund is exhausted. That will happen in some months, especially as the Fed gradually stops adding beans to the pot (tapering QE).

Or maybe not that long. Maybe some of those money managers tending the pot will at some point will be like Mr. Taggert. In response to the Treasury asking for still more beans, they’ll say “I think you’ve had enough!”

That’s when both the stock and bond markets will get really interesting for bears. Of course in my view, the bond market is already plenty “interesting,” and has been for some time.

Media reports have pointed out that professional money managers are overwhelmingly bearish on bonds, as if that’s some kind of contrarian bullish omen. I hate to be a party pooper, but market consensus is often right for long periods, especially when the facts support it. In this case, the facts support the consensus. So I’m xxxxxxxx xxxxxxx xxx xxxxxxx (subscriber version). Treasuries. I wouldn’t want to hold long term debt in this environment.

Subcscribers click here to download the complete report.

For the rest of the story, including the multi colored charts and discussion that will entertain, delight, and enlighten you about what to expect, and what to do about it, subscribe!

Subscription Plans

Get the complete report, including charts, tables, analysis, and outlook. and access to all past and future reports, risk free for 90 days!

FREE REPORT – Proof of How QE Works – Fed to Primary Dealers, to Markets, To Money

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