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Author: Lee Adler

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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Mixed Bag May Hold October Bear Treats

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The cycle indications are a mixed bag this week. The market should be coming off a test of a 13 week and 6-8 week cycle low, but indicators xxx xxxxxxx (subscriber version only). There are still a couple of cycle projections that suggest the possibility of slightly lower lows around xxxx-xx (subscriber version only). A xxxx xxxxxxx in the market averages would be necessary this week to confirm an upturn in those cycles. Otherwise, the flat down phases in 6 month and 10-12 month cycles could turn from ho hum to nasty absolute downturns.

On the third rail chart we see a completed head and shoulders top pattern that measures to 4200. Friday’s rebound came back to a broken trendline, which is a normal return to the scene of the crime after a breakdown. If the market clears xxxx (subscriber version only), however, it would be short term bullish.

On the weekly chart, the long term uptrend is bending, but it remains unbroken. The xxxxx (subscriber version only) area is now a critical fulcrum. If it creates space to the upside, then the market could trundle up along the next trendline, or accelerate if it breaks through. That line rises from about xxxx to xxxx in October. The SPX would need to break xxxx to signal an intermediate downtrend.

Long term momentum indicators suggest higher for longer. They normally form negative divergences long before price peaks. We’re on the lookout for that.

On the monthly chart, the S&P 500 started a new monthly bar. The uptrend channel remains intact. SPX would need to end October below 4xxx (subscriber version only) to break the uptrend channel. If that happened, the target would be 3900-4000. If the uptrend stays intact, the market could head for a very long term resistance trend at xxxx.

The monthly long term cycle momentum indicator remains bullish.

Cycle screening measures are weaker than the market averages and are not in position to render strong bullish signals this week. Both the intermediate term and longer term trends in this indicator are weak, suggesting more stocks are struggling than the market averages are showing.

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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. 

Bond Market Bloodbath Gets A Head Start

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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 xxx xxxx xxx xxxx xxx xxxx (subscribers’ version).

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.

The Fed’s RRP slush fund is now nearly $1.5 trilllion. I had forecast that it would top out around $1.3 trillion. Bulls get a bonus. That will fund the new supply tsunami for xxxx xxxx (subscribers’ version) 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 xxxx xxxx xxxx xxxx (subscribers’ version) will be in place. The bitter fruit of QE, and tapering QE, will be tasted.

The timing of that depends largely on how fast the Treasury xxxxxxxxxx xxxxxxxxxxxx xxxxxxxxxxxx xxxxxxxxx (subscribers’ version). So far, that amounts to at least $600 billion to be added to structural supply needs over the course of a few months.

This month, the Fed’s 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 xxxx xxxxx (subscribers’ version) situation plays a role in generating margin calls that trigger liquidation pressures in other assets xxx xxxx xxxxxx xxxx (subscribers’ version). That includes especially, highly liquid US assets.

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

Previously I wrote:

8/26/21 In fact, it’s surprising that the stock rally has been so muted, and that the bond rally has stopped in its tracks over the past 6 weeks. That’s because corporations have been rushing to issue new equity and new debt to take advantage of the high prices they can get. This is free money to them.

9/15/21 I had forecast this last year, and have reported on it several times this year. Just this week we began seeing mainstream media news reports confirming record levels of corporate issuance.

8/26/21 Once the Treasury begins to issue new debt, it will be on top of this gigantic wave of corporate supply. It won’t be pretty.

It also won’t be immediate. I estimate that by the time the debt ceiling is lifted and the Treasury supply tsunami starts, the Fed’s RRP slush fund will reach about $1.3 trillion. That’s how much new Treasury debt can be issued before the crisis becomes apparent.

8/26/21 We have a few months. Xxxxxx xx xxxxx xxx xxxx (subscribers’ version), but we’ll have the meters of the Fed’s RRP account, and the schedule of new Treasury issuance, as well as the QE schedule. If the Fed chooses to reduce that schedule, that’s their problem, and the market’s.

But it won’t be ours. Because we’ll be actively watching, with situational awareness. We’ll hopefully be prepared to take advantage with enough advance notice to act accordingly.

9/15/21 It’s been reported that the Fed will begin its “taper,” which are small reductions in the amount of QE purchases it makes, in November.

Meanwhile, the 10 year Treasury yield has broken out to the upside. We expected that. But I didn’t expect it to happen this quickly. I attribute it to front running, xxxx xxxxx (subscribers’ version), and record corporate issuance, all of which are sucking money out of the market as fast or faster than the Fed pumps it in.

In conclusion, I repeat what I wrote in mid September. 9/15/21 It’s a recipe for disaster. So I reiterate my view that xxxx xxxx xxxxx xxxxx xxxxx xxxxx, (subscribers’ version) a view that so far, appears to have been remarkably prescient.

Below are a few previous summary observations which remain relevant. Supporting data, charts and analysis follow that (subscribers’ version).

8/13/21 The Wall Street talking head community, with a few Fedheads chiming in, is now in a growing chorus that the Fed will start tapering soon. Our analysis has been that the Fed can only taper if the Federal deficit is shrinking, thereby reducing Treasury supply. If the Fed were to taper in the face of constant or rising supply, the market would need to adjust in order to absorb the additional supply. Bond prices would fall and yields would rise.

This is where the revenue trend is important. If it weakens, the deficit will grow and supply will increase. This is even before considering the infrastructure spending package. If revenue growth stays strong, the Fed could conceivably do a small cut in QE (aka taper) without crushing the bond market. That could turn into the muddle through scenario.

The Treasury market rally of recent months has meant that Primary Dealers have built a profit cushion that would provide some protection in the event of bond market price weakness. In addition, initially, the supply increase that results from the lifting of the debt ceiling will be funded by the trillion + dollars that has been deposited in the Fed’s RRP program. That is still growing as the Treasury continues to pay down T-bills.

Those two factors will delay a bond market crisis for a couple of months. It’s difficult to estimate for how long, with any certainty.

It depends on when the debt ceiling is lifted, how much tax revenue the US economy is generating, and how much the Fed cuts its purchases of Treasuries and MBS as it begins the “taper.”

A muddle through scenario is always possible, but a crisis is also possible, if not more likely. The timing is in question, but it should come xxxxxxxxx xxxxxxx xxxxxxxx (subscribers’ version). The timing will become clearer as the trends of the data begin to show themselves once the debt ceiling is lifted. That includes the supply schedule, the trend of Federal revenue, and the Fed’s schedule of reduced purchases.

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A Few Good Signs from the Gold Miners, But Not the Metal

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Gold is at a critical level, testing trend support at xxxx (subscriber version). Updated cycle projections now point to a low of xxxx-xx, with the time window xxxx (subscriber version). The 9-12 month cycle is still in a flat down phase, but it could get much worse if it breaks xxxx (subscriber version).

The Mining Stocks Index (HUI) 9-12 month cycle momentum has reached the level of past lows since 2017 as HUI ticked the bottom of its major downtrend channel. Failure to hold here would be bearish, with the next target xxx-xxx. Conversely an uptick here would be bullish (subscriber version).

Today’s swing trade screen was unqualified good news for the short term outlook. It yielded 25 buy signals and just 1 sell signal, with 26 stocks rendering no new signals. Since there now seems to be a prospect of some recovery, I chose two of the 25 buys to add to the list this week, shown below (subscriber version).

I have included failsafe stoploss prices for those, and adjusted the stop for one of the existing picks.

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Rangebound Noisy Signals from Swing Trade Screen

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This Friday’s screens had 16 buys and 28 sells. That compares with the previous Friday’s 25 buy signals and 298 sell signals. This is the fourth straight week with a majority of sell signals. Yet somehow, the market averages continue to show bounce, while not making much progress.

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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The Ugh Market

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That’s right. Ugh.

Mixed cycles now suggest development of a trading range that could last xxxx xxxx (subscriber version only).

Short term cycles have turned up. The 13 week cycle has probably also bottomed, although indicators are lagging. The only projection is xxxx, for the 4 week cycle (subscriber version only).

The 6 month and 10-12 month cycles still appear to be in flat down phases. They suggest rangebound trading ahead for xxxx xxxx xxxx (subscriber version only).

On the third rail chart if the S&P clears xxxx , it should fly right back to xxxx. If xxxx holds, then they’ll probably pull back to test the xxxxx area, or even xxxx, before rebounding again (subscriber version only).

On the weekly chart, the long term uptrend is bending, but it remains unbroken. The xxxx area is now a critical fulcrum. If it creates space to the upside, then the market could trundle up along the next trendline, or accelerate if it breaks through. That line rises from about xxxx to xxxx in October. The SPX would need to break xxxx to signal an intermediate downtrend (subscriber version only)..

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

The long term cycle projections of xxxx to xxxx are still viable, with highs due between now and next year(subscriber version only)..

On the monthly chart, the S&P 500 ended August at or above long term trend resistance around xxxx. This suggested more upside. It needs to break xxxx in September to signal an end to the uptrend (subscriber version only)..

The long term cycle momentum indicator remains bullish.

Cycle screening measures rebounded and are in position to render an intermediate term bullish signal if the rally continues this week. However, a stall would reinforce a neutral to bearish intermediate trend outlook in these indicators.

(subscriber version only).

(subscriber version only).

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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. 

Liquidity Matters, The Fed’s BS Doesn’t

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I didn’t watch Powell’s press conference yesterday. Instead, I followed my twitter feed, where I got the reports, reactions, and impressions of dozens of reporters, analysts, and other observers of various stripes. My reaction to it was predictable. The same old disgust.

These multiple perceptions of Powell’s performance, reinforced my opinion that Powell, and most Fed governors and presidents, are cynical, pathological liars. They will stop at nothing to defend the rigging of the markets to benefit only their cronies and themselves. Meanwhile, those least able or least willing to participate in their game, suffer the consequences.

End of rant.

For our purposes, I remind myself and you, to watch what they do, not what they say. There’s scant evidence that the market anticipates, aka “discounts” the future. There’s lots of evidence that market prices correlate with money flows. In fact, there’s so much evidence accumulated through the years that we would have to be delusional not to recognize cause and effect.

These Composite Liquidity Index reports illustrate that. They don’t tell us anything that we don’t already know, but they serve as a good reminder, as reinforcement. We need to stay focused on what matters! Not the sideshows like the one the Fed put on yesterday, which the Wall Street captured media willing played into.

So what if the Fed says it’s going to reduce its QE purchases? So what if it says that it’s likely to start doing it in November? And so what if they cut by $20 billion per month and stop after 6 months as Powell suggested they might?

Well, ok. One thought is that might coincide with the draining of the RRP slush fund that I’ve pointed out to you in these reports for the past several months. I estimated that the fund would top out at $1.3 trillion, coincident with the lifting of the debt ceiling, probably in early October. Well, here we are at $1.283 trillion in the RRP fund yesterday (9/22).

And all of the headlines are about the looming Federal budget and debt ceiling deadlines.
Something’s happening here. It will get done. Temporary default or not.

Take with a grain of salt all of the predictions of catastrophe if the government defaults. There will be short term dislocations, no doubt, but the politicians will, in God’s good time, pass a budget, and lift the debt ceiling, and the Old World, with all its financial power and might, will step forth to the rescue of the New (with apologies to Churchill).

Lifting the debt ceiling will start the clock on exhausting the RRP slush fund. The catastrophe will come when that fund approaches zero again.

So here we are. The Fed will cut QE. The RRP slush fund will need to be used to absorb the Treasury issuance. If the fund lasts 6 months, which I doubt, then the Fed can follow its $20 billion per month QE cut trial balloon.

But at the end of that time the bond market will collapse, because there won’t be enough money in the financial system to absorb the paper at an equilibrium price. Prices will fall, and will do so continuously, with a concomitant increase in yield.

Or it could come sooner than 6 months. It depends on how fast the Treasury will move to replenish its cash account and repay the other internal funds it raided. If they go low and slow, then they can stretch this charade to the maximum. If they move quickly, then the sheet will hit the fan much sooner. The Fed will not be able to continue cutting purchases for 6 months. It will stop and reverse much sooner.

Not being an insider, I don’t know what the plan is. So again, all we can do, and in fact all we need to do, is watch the data. It will tell us exactly what’s going on at just the right time that we need to know it. This report, and those to come, will show you, with charts and clear explanations (subscribers only), exactly what’s going on and when we’ll need to react .

All will unfold before us in good time. We did not need Jerome Jerry Jaysus Powell, or Janet Yellin’ Yellin to tell us that. We can see the trends for ourselves in the monetary indicators. It’s all there for us to view with our own eyes (subscribers only).

We can predict what they’ll say, and more importantly what they’ll do. But prediction isn’t all that helpful, because, again, the market does not discount. It responds to changes in liquidity, directly and immediately.

On occasion, rarely, it will react to an external shock, like a pandemic. But those events are always temporary. In the end, the market always returns to following the path of liquidity. You’ll see that again, and in the future, in these reports (subscribers only) so that you can act to preserve and grow your capital under the most adverse circumstances.

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When Hope Is Not a Good Thing

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I would call today’s big picture cycle screening data for the mining stocks an unqualified disaster, were it not for the fact that the two longer time frames barely dropped below neutral. Moreover, the short term numbers reached a deep sell side extreme. So all is not lost yet. But another down week would crush any hopes of a near term rebound.

When all feels hopeless is usually when a bottom arrives. Right now feels semi hopeless. Maybe not a good thing.

Today’s mining stocks short term swing trade screen yielded 7 buy signals and 7 sell signals, with 38 stocks rendering no new signals. It’s not a recipe for a trouncing, but also not one that inspires confidence. I looked at the charts of the 7 buy signals and the setups promised no more than a dead cat bounce. So I let the dead cats lie.

The last 3 of the picks from August 24 got stopped out last week. The 3 new picks were all losers on the week, but the charts are not broken. At least not yet. There’s still still a reasonable chance of a rebound. I have added stops to those, just below support levels. The table and charts are in the subscriber version.

As for the metal itself, it looks set up for a little bounce here that should carry back to xxxx-xxxx (subscriber version). Then we’ll see. If they hang around up there, it would be a good sign that the worst is over. An immediate rollover would not be.

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Sell Signals Again Have The Edge From Friday’s Swing Trade Screen

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This Friday’s screens had 25 buys and 29 sells (including one buy on an inverse ETF). That compares with the previous Friday’s 7 buy signals and 42 sell signals. This is the third straight week with a majority of sell signals. 1344 stocks met the initial screening criteria. Only 4% of them rendered signals on Friday. The rest were already moving in the direction of the most recent signal.

We’ve had plenty of advance warnings for the current weakness.

9/13/21 But there are hints of a downturn that suggest that it’s finally time to actively consider adding shorts to the list, something that I’ve assiduously avoided for the past 18 months.

9/13/21Again this week, one of the interesting things in these signals was that 9 of them were bearish signals on fixed income ETFs. Last week it was ten. They’re not movers and not really candidates for trades, but it squares with our liquidity analysis that the bond market will be a bad place to be from here on.  

9/13/21 Likewise there were numerous sell signals on REITs. That’s another bearish sign for not just the group, but for fixed income and the stock market. I don’t like to trade REITs. They tend not to trend, but to jump around like rangebound Mexican jumping beans. But the bearish indications are beginning to coalesce into a theme that fits our outlook.

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Last week I put a toe in the bearish waters with 3 shorts. I wanted to wait for a bounce to add more. The market may not be so kind as to accommodate that. When is it ever?

Meanwhile, 3 buy side picks are hanging on. I’ve adjusted the stop levels on those.

In addition, I’m adding two shorts to the list this week, XXX, and XXX, (subscriber version only) as of the 3 PM price on Monday.  Delayed entry time may or may not be a tactical winner, but with Monday morning’s broad market weakness, a mid-day bounce could give a better entry price. It’s a crapshoot, which, as always, is up to your judgment if you are watching and trading these picks.

Last week was another losing week. I did not have enough shorts, with only 3 short picks to start on Monday, and one went the wrong way.  Three more buy side picks got stopped out after 7 were stopped the week before.

Including both those stopped out and those left open, the list had an average loss of 1.1% with an average holding period of 16 days. That was slightly worse than the prior week’s loss of 0.9% with an average 18 day hold. Several weeks of small gains have been wiped out in this transitional period. I need to do better.

Charts and table of existing picks 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. 

Technical Trader subscribers click here to download the complete report. 

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