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Author: Lee Adler

Here’s What the Treasury Buying Stampede Really Means

We’ve been following the story of the US Treasury paying down outstanding T-bills since late February. $680 billion of paydowns led to a big turnaround and rally in longer term Treasuries as the Treasury pumped that money into the accounts of former bill holders and simultaneously removed that paper from the market. Some holders sought greener pastures in longer term paper, leading to the rally in the 10 year yield and other maturities.

In recent weeks we’ve taken note of the Treasury reducing those paydowns, and we saw a few hiccups on the Treasury market. But over the past week, the rally resumed, thanks to this being the Fed’s monthly MBS purchase settlement week. Then the Treasury piled on again on Thursday, announcing another $48 billion in bill paydowns for this week.

The Fed holds MBS settlements in the third week of every month, for forward purchase contracts it made over the past two months. This week’s settlements total $128 billion, which is yooge. They started last Wednesday (July 14) with a down payment of $83 billion. The second installment is for $15 billion today. They finish up on Wednesday, injecting another $29 billion into the accounts of the Primary Dealers from whom they buy that paper.

Then late last week, the Treasury announced, in its infinite wisdom, that it would pay down another $40 billion in T-bills tomorrow (July 20) and $8 billion on Thursday. Drowning in cash, enough fixed income guys turned blue and bought further out on the curve on Friday and this morning to send bond prices soaring and yields crashing.

Apparently the dealers and others have wanted nothing to do with stocks, so they ploughed all of the cash into Treasuries. The stock selloff exacerbated the yield rally, and vice versa.

Traders and pundits tend to talk rotation when these events occur. For now, they’re blaming a resurgence of COVID cases, which is unwarranted because with a majority of US and European citizens at least partially vaccinated, few people are dying. It’s just mindless panic.

But here’s where Treasuries are really headed, and why. And what you should do about it.

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Chart Picks – This Market is Hamburger

I often refer to rangebound markets as meat grinders for swing trading purposes. The more tightly rangebound they become, the more false signals are generated, and the more whipsaws there are. This market certainly qualifies. Last week’s list got ground to a pulp. All 6 picks had minor losses. Two got stopped out, and one will be dropped as of today’s open.

In the weekly market update, we saw a pileup of inconclusive data. Again, the trading range is both cause and effect of the lack of conviction by either buyers or sellers. The market hasn’t yet tipped its hand on which way it will break out. Both for the broad market indicators and the individual stock charts, the data simply screams for us to do nothing.

Last week, I even warned about that, despite a huge number of buy signals.

The enormous bullish spread on Friday would normally suggest thrust, and a new upleg, meaning that this rally would be likely to run for weeks. But, once again, I wasn’t impressed after eyeballing all 152 of the charts with signals. Most looked to be of the rangebound whipsaw variety. I didn’t see that many that appeared to be in an early upmove setup.

Unfortunately, I found 5 charts last week that I liked enough to add to the list. Blech.

This Friday’s screens were even-steven with 27 buy signals and 29 sell signals. Not only did the ambiguity show up on the list as a whole, but the individual charts were equally ambiguous. Lots of rangebound whipping, with little sign of either an up or down follow through. One of the charts even had signals in both directions.

In the end I only found one that I thought had a decent low risk, high potential reward setup. That was ….., and it was a short.

Get the newest pick and review charts of existing picks in today’s report. Technical Trader subscribers click here to download the complete report. 

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Here’s What Friday’s Selloff Means for Our Future

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Cycles up to 13 weeks probably turned down on Friday. However, the 13 week cycle still has an unmet projection of xxxx (in subscriber report) that can’t be ruled out unless the market breaks hard early this week. There’s not enough evidence that the 6 month or 10-12 month cycle have topped out either. A 10-12 month cycle high is due between xxxxx and xxxxx (in subscriber report). There are currently no projections on those cycles for the SPX, and a projection of xxx on QQQ.

There was less there than meets the eye in Friday’s reversal on the third rail chart. Support lines start the week at xxxx and xxxx and rise to xxxx and xxxx (in subscriber report). Breaking those would signal possible intermediate trend reversal. There’s another trendline running from xxxx to xxxx  that could also be support. It too would need to be broken for bears to get a foothold

On the weekly chart, SPX is hanging on to the pinnacle of a wedge. The negative divergence in the long term momentum indicator looks similar to the one that preceded the February 2020 top. A down week this week could trigger a decline to xxxx xxxx xxxx xxxxx. That’s the big boy they’d need to break to set off a possible bear market.

Long term cycle projections point to xxxx-xxxx with highs due between next month and sometime next year.

On the monthly chart, the upper channel line will be around xxxx at the end of July. A much longer term trendline represents support around xxxx in July.

The long term cycle momentum indicator remains bullish.

Cycle screening measures were weak again, continuing a pattern of negative divergence that become glaring last week. I have warned that this pattern was a warning, and now I’m warning that the warning seems ready to bear bearfruit.

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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. 

QE Vs. Treasury Supply Will Never Be More Bullish than Right Now

I finished my two dose vaccination regimen on June 14, and travel restrictions have lifted here in Europe since July 1. It’s been an interesting few weeks as I’ve made my way from my recent base in Zadar, Croatia, up through wonderful Ljubljana Slovenia, Bratislava Slovakia, and currently, the amazing city of Krakow Poland. I’ll be heading to Warsaw on Thursday, where I plan to hang out for at least a couple of months this summer as I do genealogical roots and look for evidence of family left behind here after my grandparents left in 1900.

As I return from vacation mode and a light publication schedule, I had a big day planned for tomorrow. I’ll be visiting Auschwitz all day. Therefore, I wanted to get at least a short overview of the current QE situation out to you tonight. This report covers the most important basics and outlook.

We already know that the bond market has rallied as a result of the massive Treasury paydowns. That’s all about to end, and I think that the Treasury rally may be in the process of reversing.

All good things come to an end. Here’s what to expect in the weeks ahead as a result of the things we already know, and a few that we can deduce as a result.

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Where The End Stage Rally is Headed

Most cycles are in up phases or trending mode. Cycle projections range from xxxx-xxxx. Time analysis suggests that concurrent up phases should last xxxx xxxx (in subscriber report). A 10-12 month cycle high is due xxxx. There’s currently no projection on that cycle.

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The S&P starts the week at the top of a short term channel on the third rail chart. Trend resistance runs from 4373 to 4395 this week. Support runs from 4324 to 4345, with more important support starting at 4260 and rising to 4300. If the market stays between those lines, the trend status quo stays in force. An upside breakout would indicate acceleration. A downside breakout would suggest a possible change of trend.

On the weekly chart, the SPX has cleared wedge resistance at 4320 and is now taking aim at channel resistance at 4500. It would need a weekly close below xxxx (in subscriber report) to break the uptrend.

New long term cycle projections point to xxxx-xxxx (in subscriber report) with highs due between xxxxxxx and xxxxxxxx.

On the monthly chart, June ends with the S&P testing an upper channel line at 4280. That line will be around 4350 at the end of July. A longer term trendline represents additional resistance around 4400. A much longer term trendline represents support around 4185 in July.

The long term cycle momentum indicator remains bullish.

Cycle screening measures were notably weak, considering the broad market averages made a new high. They are barely positive, and ominous negative divergences persist. I have deferred to the standard price indicators. The weakness in the cycle screening numbers should be taken as a warning.

The chart pick list has been dead in the water. False signals have proliferated as the market has churned around new highs, with no broad strength. Despite a huge number of new buy signals on Friday, most appear to be the result of rangebound noise.

Technical Trader subscribers click here to download the complete report.

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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. 

Chart Picks – Tons of Fake Signals Are Mostly Noise

Since the last report two weeks ago, before our half-season break, four picks hit their stops. All were longs. Ironically, the only remaining pick is a short, and it has a minimal gain. I tightened the stop on it. For some odd reason, I suspect that it will get taken out. 😉

The current screen from charts as of the close on Friday, July 9, had a whopping 139 buys and 13 sells. Two of the sells were inverse funds, making the final score Bulls 141, Bears 11. But the kicker is that 7 of the sells were bond funds. There were only 4 equity sell signals out of the total 152 signals. That’s mind boggling.

I took a little vacation last week, so no weekly figures to compare. Before the break, they had been lopsided on the buy side. The market has made surprisingly little upside progress, given the surfeit of buy signals. There’s a lot of noise, and not a lot of direction in these signals.

The enormous bullish spread on Friday would normally suggest thrust, and a new upleg, meaning that this rally would be likely to run for weeks. But, once again, I wasn’t impressed after eyeballing all 152 of the charts with signals. Most looked to be of the rangebound whipsaw variety. I didn’t see that many that appeared to be in an early upmove setup. There were only 5 charts I liked enough to add to the list for this week.

Here are the picks I liked from Friday’s raw data. They’re all longs. The stop levels also represent no-go prices if the these long picks open below their stop.

Table in subscriber report.

This table summarizes recent list performance. Current charts of new picks are below.

Get the newest pick and review charts of existing picks in today’s report. Technical Trader subscribers click here to download the complete report. 

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Real Time Tax Data Hot Like the Weather

I wanted to take a short break from my short vacation to get this post out. I’ll take a few more days hiatus and get back to a regular schedule posting next Monday.

My headline for the revenue update last month was Seven More Weeks of Bond Market Nirvana. Well, that’s four weeks down and three to go. But it could be 3 months. Because tax revenue momentum is still, hot, hot, hot, like the weather where I am in central Europe. They’re calling for a high of 100 on Thursday, here in Bratislava, where I’m currently sweating out a short visit.

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Gold Trader Vacation Week

I’m taking a short vacation for the short holiday week, as I travel north from Croatia. The gold report will not be published today, but will return early Monday. I will post a short update on real time Federal tax collections and the deficit, in a few hours.

I hope that you enjoyed the holiday weekend, and are perhaps taking an extended few days to vacation, relax, and enjoy life also. We all need that time after what we’ve been through for the past 17 months.

I certainly feel joy at being able to return to exploring the Old World. Upon saying farewell to 1000 year old Zadar, Croatia, where I resided for the past 8 months, I spent a few days in the amazing city of Ljubljana, Slovenia. It’s one of the most fun and beautiful cities I have seen in Europe.

 

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Now, I’m in Bratislava, Slovakia, which I have not had a chance to explore yet, but I hear that it too is beautiful. Crossing the Danube by bus last night, I was confronted with a modern city, dotted with tall skyscrapers and construction cranes. It could have been any mid sized American city. Which was odd. I’m looking forward to exploring the Old Town and other historic sites over the next 3 days.

Unfortunately, strolling around the city may not be too enjoyable, with temperatures rising from 92 today to 99 on Thursday. No problem. The humidity will “only” be 41%.

On Friday, I head to Krakow, Poland, and will also visit Auschwitz. I suspect that I have second or third cousins who perished there, and one who may have survived as an infant. From Krakow, I’ll head to Warsaw for a month, where I’ll be doing some digging into my ancestral history. I’ll visit the towns where my maternal grandmother and grandfather grew up before they left for the US, and try to find any archival links to extended family who remained in Poland.

Al that said, I’m definitely looking forward to resuming our regular publication schedule next week! See you then!

Subscribers, click here to download last week’s report.

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The Debt Ceiling Looms Over the Fed Balance Sheet

Note: Holiday Publication Schedule- I’ll be taking a brief break from publishing over the holiday week. I expect to resume publishing on July 6. Enjoy your holidays! 

The Fed’s balance sheet continues to grow. But the often repeated figure of $120 billion per month in Fed asset purchases is inaccurate and misleading. The Fed’s balance sheet grew by $198 billion for the 4 weeks ended June 23. The Fed’s total QE purchases for the month of June were $202 billion, including the weekly Treasury purchases, and all the forward MBS purchase contracts that settle in the third week of the month.

I wanted to get this report out before the holiday weekend, and my planned travels over the next two weeks. I’ve been planning the trip and at the same time packing up for my exit from Croatia after residing in this wonderful country for the past 18 months. I apologize for this report being perhaps more disjointed and incoherent than usual. Hopefully, the ideas I want to communicate are clear enough.

The Fed’s balance sheet continues to grow. But the often repeated figure of $120 billion per month in Fed asset purchases is inaccurate and misleading. The Fed’s balance sheet grew by $198 billion for the 4 weeks ended June 23. The Fed’s total QE purchases for the month of June were $202 billion, including the weekly Treasury purchases, and all the forward MBS purchase contracts that settle in the third week of the month.

Other Wall Street observers don’t count everything. They ignore the Fed’s MBS purchases bought to replace those MBS holdings that were prepaid because borrowers paid off their balance either by sale or refinance.

That money comes out sale or refinancing proceeds of individual mortgage borrowers. It has no impact on the financial markets. To replace those prepaid MBS, the Fed buys more MBS from Primary Dealers. The cash the Fed pays to replace those prepaid MBS goes right into the accounts of the dealers. It makes absolutely no difference why the Fed bought the paper. It doesn’t matter if it’s new paper or rollover paper. All $202 billion went into Primary Dealer accounts. Not $120 billion.

Another factor boosting the markets lately is the Treasury’s T-bill paydowns, which I’ve been reporting for you regularly. They totaled $133 billion in June, coming out of the Treasury account on the Fed’s balance, sheet, and mostly going into RRPs. You would think that the markets would have done even better with all this cash flooding in. But most of the paid off T-bills were held by money market funds. They’re not going to put that cash into longer term Treasuries or stocks. They had no place to put the cash, so they sent it off to the Fed for safekeeping, in the Fed’s RRP program, while they wait for T-bill issuance to pick up again.

That will happen, but the question is the timing. The debt ceiling is the wildcard.

This report examines what it means for the stock and bond markets, particularly when we can expect bullish to turn bearish. Click here to download the complete report.

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