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Author: Lee Adler

When This Boring Market Finally Reaches the Center of the Earth

Every week I run technical stock screens covering all NYSE and NASD stocks trading above $6 and averaging more than 1 million shares a day. This typically results in between 15 and 50 charts to review visually. I’m looking for low risk, high reward price structures, which I’m not smart enough to program into the screening process. But it’s ok. I like to look at charts. 

My picks from the screens are churning along with the market. 3 picks dipped below their stops, with losses in two of the 3 resulting in a flat performance for the list overall.  List performance slipped to an average of +0.2%, down from +1.0% the week before, on an average holding period of 13 days. The percentage change assumes cash trades, no margin, no options.

It’s boring as hell.  All there is to do is to keep nibbling on charts that look promising. I managed to find one pick among Fridays’ screen output of 43 signals that looked good enough to add to the list this week. The idea is that when the market finally starts to move, we’ll have picks on the list that are positioned to take advantage.

The current screen from charts as of the close on June 11, had 28 buys and 15 sells.  That was the first time last week that buy signals had the edge. For the past 5 trading days, there were 95 buys versus 116 sells, a spread of -21. That compares with last Friday’s -37.  This is down from a peak of +218 on May 20.

However, there’s been no momentum breadth thrust to the downside either. So we wait for an impetus one way or the other. The market has simply drifted and churned, with most charts ambiguous, and few showing clear impetus either way. We’re looking at about 1300 stocks that meet minimum price and volume criteria, and only 43 generated signals either way. Booooring.

Have Primary Dealers Built a Muddle Through Scenario?

For several months, I’ve been positing the idea that when the Treasury gets its cash level down to the legally required limit, the stock and bond markets would be in big trouble. The risk of a crash would be as great as it ever is. I posted an expected time window (in subscriber version)  where it would be a good time to get out of both the stock and bond markets.

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That conclusion came from the idea that:

• Primary Dealers were overleveraged in their fixed income portfolios.

• That the market has been artificially buoyed by the Treasury paying down T-bills. It has now injected $620 billion into the accounts of dealers and investors since February 23.

• That when the Treasury reaches the required cash level of XXX billion (reported in subscriber report), the paydowns will stop.

• That record levels of deficit spending would then no longer be partly funded out of the Treasury’s cash on hand. That would require a dramatic increase in debt issuance.

At first I estimated that that would happen in xxxx (see subscriber version), but lately I’ve pushed that estimate back to xxxx (subscriber version). At that point, the increase in Treasury debt supply would supposedly begin to push bond prices down both in Treasuries, MBS, and corporates.

Highly leveraged dealers would then face forced selling as they were required to meet collateral calls on the inventories they had financed with repurchase agreements (repos). Repos are just a fancy kind of short term borrowing to finance securities purchases, similar to when we use margin debt to buy stocks.

All of that still looks likely to happen. But instead of a crash, I can now see the possible outline of more of a “muddle-through” scenario. I still expect trouble to arrive around xxxxx (in subscriber version), with maybe a few weeks of Wile E. Coyote market action.

But maybe that trouble won’t be quite as bad as I first thought.

There are two reasons for that. Discussion in subscriber version.

The end of Treasury paydowns will, no doubt, cause yields to rise over a short period of time. And that could have been catastrophic.

But lo and behold, we see Primary Dealer data that suggests it won’t be as bad as I had feared. I show that data in a couple of tables and charts in this report.

We won’t know for sure until we get there. I’m still looking at xxxx (in subscriber report) as a likely top in the markets. We’ll just have to see how conditions evolve over the next (time period in report), and take action accordingly. For now, while the Treasury continues to pay down outstanding T-bills, we can follow this strategy (discussed in report).

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

The Old Line Trading Firm of Dewey Cheatham Burnham and Howe

Cycles are still bullish, with the 6 month and 10-12 month cycles ideally due to top out concurrently in xxxx (subscriber version). The 6 month cycle projection is xxxx (subscriber version).

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Cycle projections for short term cycles point to xxxx-xxxx (subscriber version). The 13 week cycle is just turning up. There’s no projection for it yet. I noted last week that, “A stronger period is due in the 13 week cycle beginning in mid June that should support reaching those targets, or more.”

Churn And Burn Picks off Stops But Two New Picks Join the List

2/16/21 Every week I run technical stock screens covering all NYSE and NASD stocks trading above $6 and averaging more than 1 million shares a day. This typically results in between 15 and 50 charts to review visually. I’m looking for low risk, high reward price structures, which I’m not smart enough to program into the screening process. But it’s ok. I like to look at charts. 

Prices continued their rangebound churning last week. 2 picks dipped below their stops. Both were slightly profitable.

List performance slipped to an average of +1%, down from +2.4% the week before, on an average holding period of 14 days. The percentage change assumes cash trades, no margin, no options.

The stopouts left just 4 picks on the list. All are longs, and 3 look ok to hold, with stops adjusted based on trigger lines in the charts. Xxxx looks less favorable, so I have tightened the stop to near Friday’s low.

Real Time Tax Data Shows Nirvana for Stocks and Bonds, But It’s Temporary

Withholding tax revenues rose sharply again in May (chart in subscriber version). Non withheld taxes also rose sharply. The economy is growing faster than the Fed would have you believe, and that the Wall Street mob seems to believe.

Revenue momentum is hot, hot, hot. But spending is hotter (table in subscriber version). The impact of economic stimulus will lead to economic overheating and embedded inflation.

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Meanwhile, the Treasury’s bloated cash account is coming down slowly. To get to the level legally mandated by the budget law by the deadline (reported in subscriber version), the Treasury will need to continue T-bill paydowns. This will continue to provide a bid for both stock and bond prices.

But that will all reverse, and we know when. The Treasury’s excess cash will be gone. Enormous monthly deficits will then need to be fully funded by borrowing. Hundreds of billions in new Treasury debt will start hitting the market for months to come. The pressure on the markets will multiply instantly.

Both bond and stock prices would begin to decline rapidly. The Fed would be forced to act.

The media is reporting the Fed is thinking about getting ready to talk about tapering bond purchases. Forget about it. It’s ridiculous. When the Treasury gets down to its required cash level, not only will the taper talk masturbation end, but Fed yield control, with unlimited QE, would be in play.

A slow Fed response would come too late to prevent real, and possibly lasting, damage to market prices of stocks and bonds (Treasury yield and price charts in subscriber version).

Meanwhile the US Treasury has pumped $600 billion into the accounts of holders of expiring T-bills since late February. Those holders are mostly money market funds, but include dealers and other big institutions. Dealers and big investors deploy that cash to buy longer term Treasuries and, in some cases, stocks. More paydowns are coming. That’s short term bullish for both bonds and stocks.

But beware! The end is nigh! And we know when. This report shows you how we reach this conclusion, and when you need to take action to either take advantage or get out of the way. With 9 beautiful charts and tables to show you exactly how and why we reach this conclusion!

Subscribers, click here to download the report.

Available at this link for legacy Treasury subscribers.

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Have a question about Liquidity Trader? Click the chat link at the bottom right of the page, and I’ll be happy to answer your questions. I am often available to chat with you directly between the hours of 5 AM ET and 4 PM ET weekdays. At other times I’ll respond by email.

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Goldilocks Correlation is Still Bullish, Still Bullish After All These Years

Stock prices are currently right in the middle of the channel surrounding the liquidity line in the Compositite Liquidity Chart (viewable in subscriber version). By this measure the market isn’t overbought, as so many bearish pundits are bellowing. Nor is it oversold. It’s just tracking the growth of systemic liquidity. Not too hot, not too cold, but just right. Goldilocks.

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Dull as Hell, And Still Bull

Cycles are still bullish, with the 6 month and 10-12 month cycles apparently in trending mode. This means that there are neither price projections nor time guesstimates for those. In these circumstances we need to resort to trend following indicators.

Cycle projections are only available for short term cycles. There are no projections for cycles from 13 weeks to 10-12 months. We’re flying blind as to likely upside targets on those. Short term projections point to xxxx-xxxx (subscriber version) during June.

Technical Trader subscribers click here to download the complete report.

 

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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. 

Volatility Subsides, But Range Remains, Picking off Stops

2/16/21 Every week I run technical stock screens covering all NYSE and NASD stocks trading above $6 and averaging more than 1 million shares a day. This typically results in between 15 and 50 charts to review visually. I’m looking for low risk, high reward price structures, which I’m not smart enough to program into the screening process. But it’s ok. I like to look at charts. 

The volatility subsided, but the range remained. 4 picks dipped below their stops. Were they too tight? Or is this the beginning of the end for the longs. Time will tell.

Meanwhile, list performance improved slightly to an average of +2.4%, up from +0.2% the week before, on an average holding period of  15 days, up from 10 days the week before. The percentage change assumes cash trades, no margin, no options.

The stopouts left just 4 picks on the list. All are longs, and all look ok to hold, with stops adjusted based on trigger lines in the charts. I added two more picks from Friday’s screen.