The strength of rally took me by surprise, I must say, but not the timing. Short term cycles were due for an upturn, but nothing is ever certain in this business. That’s why I use trailing stops on swing trade picks. They pick up the better part of what I miss (hopefully).
But is this rally for real? Will it stick? That’s the question, and it hasn’t been answered yet. We’ll look for an answer Monday and Tuesday. There’s reason to think the rally will stick for a short while, but not beyond that. Below are the particulars.
Cycles- Short term cycles have turned xxxxxxx. It’s a little early for a 13 week cycle xxxxxx but if the SPX clears xxxx this week, it would suggest a move to target either xxxx, xxxx, or xxxx in a 13 week cycle up phase. Ideally, that would end the up phases in the x xxxxxx and xxxxxxx xxxxxxxx cycles. Conversely, a break below xxxxx would suggest an aborted xxx xxxx xxxx xx phase and an xxxxxx xxxxx to the xxxx phases in the longer cycles. Non subscribers click here to access.
Third Rail The market broke out of the crash channel and has set up a broad intermediate xxxxxx channel. The bottom of the channel starts the week at xxxx and rises at xxpoints per day (PPD) to put it just below xxxx on Friday. The trend is xx as long as the SPX stays above that. Non subscribers click here to access.
Long Term Weekly Chart – The 18 month – 2 year cycle channel is set up to turn toward a flat up phase. However if the SPX finishes any week above xxxx, then that up phase would have an upslope. Long term indicators remain on the xxxx side. There’s xxxx basis to expect that a xxxxx bottom is forming. Non subscribers click here to access.
Monthly Chart – The August reversal set up a downtrend channel for September onward. It allows for a drop to trend support around xxxx. The bottom of the new downtrend channel is at xxxx in September. To break the new downtrend channel the SPX would need to end September above xxxx. Non subscribers click here to access.
Cycle Screening Measures – The cycle screening aggregate exploded higher last week. But more xxxxxx would be needed to turn the xxxxxx term pattern xxxxxxxx. If the market xxxxxx early this week, the pattern will remain xxxxxxxx. Non subscribers click here to access.
This looks more like a xxxxxxxx xxxxxxxx signal for the 6 month cycle than a xxx xxxx phase. These are usually short lived. Non subscribers click here to access.
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.
In the last Treasury Supply update for subscribers I warned that the Treasury could do a big T- bill paydown at mid month, but that it was not certain. It would be short term bullish if it does. There’s a complete discussion of the implications of that in that report, with more to follow in the next update.
Today, the Treasury confirmed that it will do a $60 billion T-bill paydown on September 15. That’s enough to fund almost the entire coupon issue the same day.
The strategy and tactics suggestions in this report are informational and general in nature, and illustrative of one approach. They are not investment advice. No representation is made that it is the best approach, will be profitable, or even suitable for any particular investor.
Nothing in this letter is meant as personalized investment advice and you should not construe it as such. Trading involves risk of loss, and in the case of options, the loss can be 100% of the amount invested. Any trading that you do with reference to strategies and tactics suggested in this report should be done only after consulting with your financial adviser. Trade at your own risk.
As the decline matures the number of new sell signals naturally diminishes and the number of buy signals starts increasing. That happened last week but there was a slight increase in sell signals from the prior week.
The overall picture this week is ambiguous, neither bullish nor overwhelmingly bearish. It looks too soon for adding new buys to the list, and mostly too late for new sells. But I did add two shorts this week.
As of Friday September 2, there were 33 charts with second or third buy signals on the last two days of the week. There were 29 charts with second or third sell signals to end the week, versus 18 the week before. On Friday alone there were 32 buy signals and 23 sell signals. But many of the buy signals were inverse fund sell signals, and were duplicative, such as funds that were 1x, 2x, and 3x the same or similar indexes. Non-subscribers click here for access.
After visual review of this week’s screen results, I have added 2 picks to the list on the short side, and none on the buy side. The new shorts are XXX and XXXX. This will result in the list having 13 picks, all shorts. Charts below. Non-subscribers click here for access.
As usual, I’ll start them with no stops for the first week, to give the market manipulators room to play with them before the expected swing sets in. Tracking of the new picks will start as of the opening price on Tuesday. Non-subscribers click here for access.
The screen results come from a universe of approximately 1200-1500 stocks daily that meet the criteria of trading above $6.00, and with average volume greater than a million shares per day. I start the weekly process by screening for daily buys and sells from the previous Friday through Thursday. I then rescreen that output, for additional signals in the progression on Thursday and Friday. Non-subscribers click here for access.
16 picks were closed out in August. The average gain was 3.4% with an average holding period of 2 weeks. Since last November, when I last tweaked the screening and selection methodology, 108 picks were closed out with an average gain of 2.9% and an average holding period of 17 calendar days. Non-subscribers click here for access.
Last week 4 picks were stopped out — 2 shorts and 2 buys – all wins. The gains ranged from 2.7% to 15.1% and averaged 9.6%. The average gain of open and closed picks for the week was 7.7%. The average holding period was 12 calendar days. We can’t annualize that, of course, but profits over the past 3 weeks have beaten the averages since November.
The performance of currently open picks and those closed last week is shown on the table above (subscriber version). Charts of open and new picks are below (subscriber version). Non-subscribers click here for access.
8/1/22 July had been a narrowly rangebound meatgrinder market until last week. Only two picks were closed out during the month for an average loss of 2.6%. Non-subscribers click here for access.
7/4/22 Picks closed out in June averaged a gain of 10.1% on an average holding period of 17 calendar days. That works out to an average of 4.1% per week. There were 12 closed picks. The win rate was 75%. I would hope to continue that, but it is by no means a given. Non-subscribers click here for access.
June’s performance is not something we should expect to duplicate too often, if at all. The average weekly gain since I tweaked the methodology in mid January is just 1.29%, while trending upward lately. Non-subscribers click here for access.
6/6/22 Picks closed out in May averaged a gain of 3% on an average holding period of 2 weeks. That worked out to an average of 1.5% per week. There were 28 closed picks. 25 were shorts. Non-subscribers click here for access.
5/9/22 April was a challenging month. The final tally of closed picks in April had an average loss of 0.4% with an average holding period of 11 calendar days. My system does not do well when the average low to low cycle duration drops below 4 weeks. Non-subscribers click here for access.
March was better. Picks closed in March had an average gain of 4% with an average holding period of 23 calendar days. Non-subscribers click here for access.
1/18/22 I will continue to (mostly) forego stops in the first week that a pick is added to the list. I continue to feel that stops should only be used as trend violation triggers for exiting trades that I want to close out. That would include both those that have gone well and those that have not. I still do not like arbitrary stop loss as a strategy to reduce loss, because it has equal or greater potential to reduce profits on trades that ultimately turn into big winners. Stop running, and using false breakouts and breakdowns are time honored strategies of dealers and big speculators. Such whipsaws often lead to big moves. Non-subscribers click here for access.
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. This is a developmental and experimental exercise, for the purpose of providing experienced chart traders with ideas and concepts to use or not use as they see fit.
Nothing in this letter is meant as individual investment advice and you should not construe it as such. These picks are illustrative and theoretical. The method behind these picks is experimental, and may change over time. I may trade my own account, and may buy, sell, sell short or cover short, or have positions in any of the stocks on the list at any time, based on a particular trading style that is unique to me. My entry and close out levels are likely to differ from those published due to the exigencies of my trading style and time constraints. I post these items in good faith for informational and educational purposes, and do not take positions in opposition to those which are published. All chart picks are actively traded stocks, and I assume that no subscriber to these reports, nor the total of all subscribers taking positions, would do so in a size that would influence the market price.
Performance tracking assumes 100% cash basis, no margin, no options. You should not assume that recent performance as reported can or will be repeated in the future. Trading involves risk of loss. In the case of options, the loss can be 100% of the amount invested. When leverage is used the loss can exceed the account equity under certain conditions.
The opinions expressed here assume that readers are experienced investors or are working with an investment advisor.
Last week we got technical confirmation of the absolutely brutal liquidity backdrop that I had repeatedly warned would occur in August in the Liquidity Trader Money Trends reports. Liquidity sets context. Technical Analysis represents action. And the TA is now confirming a weak outlook for the next xxxxxxx xxxxxx xxxx months.
It’s helpful that the broad market indicators confirm the trades that the swing trade cycle screens have been generating over the past 3 weeks. The last longs were closed out very profitably at the beginning of last week. That left 13 shorts on the list. All 13 of those were profitable by the end of the week. I will post an update of that report on Monday. It will be interesting to see if there are any new shorts, or longs, added to the list for the post Labor Day week. Non subscribers click here to access.
Cycles- We’re still waiting for confirming xxxxx xxxxxxxx on the 10-12 month cycle. It’s not unusual xxxxxx xxxxxx xxxxxxx late. But when they do come, as soon as this week, they will signal the likelihood that xxxxxxxx xxxxxx xxxx xxx xxxxxx lies ahead. A vestigial rally left over from the ghost of the up phase that died too early will xxxxxx xxxxxx xxxxxx xxxxxxx highs. Non subscribers click here to access.
Short term cycles are due to bottom this week. Projections have been following the market down, and have not been helpful. However, the 13 week cycle projection points to a low of xxxx, with the low still ideally due in the xxxxxxxxxx xxxxxxxx xxxxxxxxxx window. Non subscribers click here to access.
Third Rail Channels Last week’s crash channel is intact. The top line starts near xxxx on Tuesday and the centerline is at xxxx. Those lines will end the holiday shortened weak (oops, Freudian slip) at xxxx and xxxx. The market would need to break both to end the xxxxx threat. Non subscribers click here to access.
xxxx-xxxx is the most important support area. If it doesn’t hold, there’s an air pocket to xxxx that could be traversed quickly. Non subscribers click here to access.
Long Term Weekly Chart – The major downtrend channel is intact. A test of resistance has held. Long term indicators remain on the sell side. A test of the low xxxx xxxx . If it breaks, then the target would be xxxx. Non subscribers click here to access.
Monthly Chart – The August reversal set up a downtrend channel for September onward. It allows for a drop to trend support around xxxx. The bottom of the new downtrend channel is at xxxx in September. Non subscribers click here to access.
Cycle Screening Measures – The cycle screening aggregate has now made both lower highs and a lower low over the past month. This suggests that the intermediate trend xxxxxx xxxxxxx xxxx. 6 month cycle measures got smashed. They are now both on the sell side suggesting that the decline could last x xxx xxx xxxxxxxxx. Moving averages of the indicators also suggest 13 week and 6 month cycle down phases. Non subscribers click here to access.
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.
First, I want to reinforce the point that there are no accidents. So I’ll rehash the summary of this monthly tax revenue report as a reminder of the progression of how we got here.
The information we have on supply is known, either in advance or at least in real time. We merely need to monitor the tax revenue trend, and legislation that affects the Federal Budget and therefore, Treasury supply. We track Treasury supply because Fed policy comprises only one side of the supply/demand equation. Treasury supply makes up the bulk of the other side. Non-subscribers, click here for access.
8/2/22 Federal tax collections were solid in July. The recession that mainstream economists have been predicting, may be coming. I don’t know. But it’s not here yet. Withholding tax collections are still going gangbusters despite a bit of slowing in July. Non-subscribers, click here for access.
That slowing isn’t out of the ordinary. Collections fluctuate month to month. They’re still solidly positive on balance. Non-subscribers, click here for access.
Treasury supply was therefore light. In fact, nonexistent for the first 3 weeks of the month. There were $12 billion in net paydowns from July 1 to July 21. The markets were flooded with cash. Non-subscribers, click here for access.
The bond market had a stupendous rally. I had expected bonds to rally based on the light supply, but this was ridiculous. As usual, Wall Street overdid it. Now the time has come to pay the piper. [Reminder- this was posted on August 3.] Non-subscribers, click here for access.
While revenue growth shows no sign of going negative, Congress just passed a spending package that will increase spending. The deficit will begin to grow again. That translates to more Treasury supply. At the same time, investors and dealers will have less cash to absorb it. That will translate to lower prices and higher yields. Non-subscribers, click here for access.
We already saw the effects of the Treasury running out of excess cash in the last couple of weeks. T-bill paydowns ended as I had projected they would in July. New T-bill issuance is suddenly mushrooming. This will pull cash out of dealer and investor accounts and into the US Treasury, which will instantly spend it to pay its bills and obligations. Non-subscribers, click here for access.
That spending increase might even keep the US economy perking along at a solid growth rate, surprising Street economists and portfolio managers. But the cash to support that growth will come from investor accounts and dealer accounts. More money for economic spending, less money for stock and bond purchases. Non-subscribers, click here for access.
The bond rally should reverse, perhaps violently. The stock rally should also end. If there’s something that would sustain these rallies, I haven’t thought of it. [Again, all posted August 3] Non-subscribers, click here for access.
The end of month data for August looked better than it was… Here’s why, and what it means for the markets, looking ahead. Non-subscribers, click here for access.
Federal withholding tax collections declined in August. This was the second consecutive monthly decline after rising sharply and persistently throughout June.
Collections steadily declined throughout the month. This is consistent with the usual 3 month pulse of the US economy, where it accelerates for the first 6-7 weeks, then slows for the second part of the period. However, the current slowdown started earlier than usual and has therefore had a longer downstroke. That downstroke is due to end now. Non-subscribers, click here for access.
Despite the slowdown, revenue growth year to year remains positive, thanks to employee earnings inflation. From the perspective of the markets, only nominal revenue matters, not the real economic growth rate. Because revenue is a key determinant of Treasury supply. Non-subscribers, click here for access.
Nominal withholding grew xx% year over year. That would be great except that it’s a big drop from the +11.3% at the end of July. Non-subscribers, click here for access.
It suggests a rapid slowing in the US economy. But it’s only slightly weaker than the xx% gain 3 months earlier, at the end of May. As JP Morgan said, markets will fluctuate. Well, guess what! So does US economic activity. Non-subscribers, click here for access.
So is the US economy decelerating or not? With wage inflation reportedly hovering around 5-5.5%, the xx% gain in withholding tax suggests that jobs growth has xxxx xxxx xxxxx. However, this should be the trough of the normal 3 month cycle, and it is no lower than the last two troughs. While the short term cyclical breather phase is a bit more extended than usual, there’s been no breakdown from the range of the past 6 months. The economy is xxxxx xxxxx xxxxxx, not xxxxxxxxxxxx. Non-subscribers, click here for access.
Of course we never know what the BLS jobs release will show. Instead of reflecting the data collection date of the 12th of the month just completed, I’ve gotten the impression in recent months that it relates more closely to where things stood at the end of the previous month. So it’s possible that the BLS imaginary number for August will reasonably strong positive growth, reflective of July tax collections, even though we know from the tax data that the jobs market began to collapse in the second half of July and continued through August. Non-subscribers, click here for access.
The monthly average has a little over two weeks of built in lag. The 5 day average of collections is whippier, but gives us a picture of weekly action in near real time. That rolling 5 day average held above the June low, but edged slightly below the February lows twice during the month. These were not material breaks. Non-subscribers, click here for access.
On the other hand, you can see in the above chart that the trend of the 11 day total collections, which is the whippiest of all, but still subject to trends, has been xxxxxxxxxxxxx xxxxxxxxx xx xxxxxxxxx xxxx xxxx xxxx the February-June lows. Non-subscribers, click here for access.
8/3/22 If Friday’s BLS jobs report bears any semblance of reality, the number shouldn’t differ much from the growth rate in June. But given the timing of the data collection as of July 12, and the various “adjustments” that the BLS applies to their survey data, we really never know what the first release for the month will show. They then fit their data to actual data over 7 subsequent monthly revisions and annual benchmark revisions. The first release is garbage, and hit or miss as to whether it reflects reality.
The fact of the tax data shows that so far, the much feared recession isn’t here yet.
So here we are Friday morning, a few hours before the BLS jobs data release, and as usual, I can’t predict what the BLS’s fictional artistic impression of the August jobs market will look like. The fact is that it was weak and getting weaker throughout the month. But if the number is more reflective of July, that weakness won’t show up until next month. When it does show up, whether this morning or next month, the bond market and stock market will get a short lived boost from those who expect that it will mean that the Fed will soon loosen policy. Non-subscribers, click here for access.
But the fact is that if tax revenues are weakening, Treasury supply will only increase, regardless of what Wall Street says about the economy. Treasury supply will increase due to weaker tax revenue just as the Fed requires the Treasury to add $60 billion a month in new debt sales to the public to pay off the Fed. Non-subscribers, click here for access.
In addition to that extra supply from Quantitative Tightening, and a weaker economy, Fed QT also causes demand to weaken. Not only is the Fed no longer the primary buyer and financing agent in the market, but it is also choking demand by removing the cash from the banking system that would otherwise be available to fund Treasury purchases. Non-subscribers, click here for access.
The bottom line is that the weaker tax revenues are not bullish. The accompanying weaker economic data will be spun as bullish, while in fact it will not be. At least at first. It will only be bullish when xxxxxxxx xxxxxxxxx xxxxxxxx xxxxxxxx. All I can say is, “Wait for it!” I’ll give you a heads up, right here. Non-subscribers, click here for access.
The final list of double screened output for last week had 9 charts with second or third buy signals on Thursday and Friday. There were 18 charts with second or third sell signals to end the week. On Friday alone there were just 4 buy signals and 11 sell signals.
These numbers don’t seem like much of a sell side win considering Friday’s carnage, but that’s because a ton of sell signals triggered the previous week. I only take a shapshot of those secondary signals on Thursday and Friday. There are more the rest of the week. Last Friday there were 14 charts with second or third buy signals on Thursday and Friday. There were 78 charts with second or third sell signals. On an individual day basis, there were a ton of sell signals in the August 15-19 week. Non-subscribers click here for access.
So I’m satisfied that the small number of sell signals we see now is just a residual effect that so many stocks triggered sells before this. I don’t want to read more into it than that. I’ll wait for buy signals to get excited about taking short side profits or going long. Non-subscribers click here for access.
After visual review of this week’s screen results, I have added 5 picks to the list on the short side, and none on the buy side. The new shorts are xxx, xxx, xxx, xxxx, xxx. This will result in the list having 13 shorts and 2 longs, both oil and gas. Charts below. Non-subscribers click here for access.
As usual, I’ll start them with no stops for the first week, to give the market manipulators room to play with them before the expected swing sets in. Due to the late posting, and the weak pre market, I will track these as of a starting price based on the 1 PM New York time print on Monday. Non-subscribers click here for access.
The screen results come from a universe of approximately 1200-1500 stocks daily that meet the criteria of trading above $6.00, and with average volume greater than a million shares per day. I start the weekly process by screening for daily buys and sells from the previous Friday through Thursday. I then rescreen that output, for additional signals in the progression on Thursday and Friday.Non-subscribers click here for access.
For August so far, 14 picks have been closed out with an average gain of 1.9% and an average holding period of 2 weeks. Since last November, when I last tweaked the screening and selection methodology, there have been 106 picks closed out with an average gain of 2.7% and an average holding period of 17 calendar days. Non-subscribers click here for access.
Last week 4 buy side picks were stopped out with gains ranging from 0.2% to 16.6 %. None had losses. The average gain of open and closed picks for the week was 5.6%. The average holding period was 11 calendar days. We can’t annualize that, of course, but profits over the past couple of weeks have beaten the averages since November. Non-subscribers click here for access.
The performance of currently open picks and those closed last week is shown on the table above. Charts of open and new picks are below. Non-subscribers click here for access.
7/4/22 Picks closed out in June averaged a gain of 10.1% on an average holding period of 17 calendar days. That works out to an average of 4.1% per week. There were 12 closed picks. The win rate was 75%. I would hope to continue that, but it is by no means a given. Non-subscribers click here for access.
June’s performance is not something we should expect to duplicate too often, if at all. The average weekly gain since I tweaked the methodology in mid January is just 1.29%, while trending upward lately. Non-subscribers click here for access.
6/6/22 Picks closed out in May averaged a gain of 3% on an average holding period of 2 weeks. That worked out to an average of 1.5% per week. There were 28 closed picks. 25 were shorts. Non-subscribers click here for access.
5/9/22 April was a challenging month. The final tally of closed picks in April had an average loss of 0.4% with an average holding period of 11 calendar days. My system does not do well when the average low to low cycle duration drops below 4 weeks. Non-subscribers click here for access.
March was better. Picks closed in March had an average gain of 4% with an average holding period of 23 calendar days. Non-subscribers click here for access.
8/1/22 July had been a narrowly rangebound meatgrinder market until last week. Only two picks were closed out during the month for an average loss of 2.6%. Non-subscribers click here for access.
1/18/22 I will continue to (mostly) forego stops in the first week that a pick is added to the list. I continue to feel that stops should only be used as trend violation triggers for exiting trades that I want to close out. That would include both those that have gone well and those that have not. I still do not like arbitrary stop loss as a strategy to reduce loss, because it has equal or greater potential to reduce profits on trades that ultimately turn into big winners. Stop running, and using false breakouts and breakdowns are time honored strategies of dealers and big speculators. Such whipsaws often lead to big moves. Non-subscribers click here for access.
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. This is a developmental and experimental exercise, for the purpose of providing experienced chart traders with ideas and concepts to use or not use as they see fit.
Nothing in this letter is meant as individual investment advice and you should not construe it as such. These picks are illustrative and theoretical. The method behind these picks is experimental, and may change over time. I may trade my own account, and may buy, sell, sell short or cover short, or have positions in any of the stocks on the list at any time, based on a particular trading style that is unique to me. My entry and close out levels are likely to differ from those published due to the exigencies of my trading style and time constraints. I post these items in good faith for informational and educational purposes, and do not take positions in opposition to those which are published. All chart picks are actively traded stocks, and I assume that no subscriber to these reports, nor the total of all subscribers taking positions, would do so in a size that would influence the market price.
Performance tracking assumes 100% cash basis, no margin, no options. You should not assume that recent performance as reported can or will be repeated in the future. Trading involves risk of loss. In the case of options, the loss can be 100% of the amount invested. When leverage is used the loss can exceed the account equity under certain conditions.
The opinions expressed here assume that readers are experienced investors or are working with an investment advisor.
Wall Street loves to tell you not to panic when the time comes to sell everything. To them panic means sell. But the truth is, panic is like a deer frozen in the headlights. Just before it gets run over by the oncoming 18 wheeler at speeding along at 80 miles an hour on I-80 as it flees west across New Jersey making its escape from New York.
That’s what this market will do if you freeze now. It will run you over.
We’ve had plenty of warning. The propitious time to act on the oncoming danger has passed. But it’s not ok to panic and freeze now. Because this is likely to get much worse in the coming months. Any rallies are unlikely to get back to where we will be at the high of the day today, whether that’s on the New York open, or sometime later.
Cycles- If the weakness persists, 10-12 month cycle indicators could signal a xxxxxxxxx xxxxxxx to the up phase this week, with an xxxxxxxxx xxxxxxxxx xxxxxxxxxx phase likely. Conversely, a rebound this week would suggest that the 10-12 month cycle xxxxx xxxxxxxxxx xxxxxxxx xxxxxxxxx. Non subscribers click here to access.
A 6 month cycle top window xxxx xxxxx. A continuation of the decline from herewould signal a xxxxx. A recovery above xxxx this week would suggest that xxxxxx xxxxxxx xxxxxxxxxxxxxxxx xx xxx. Non subscribers click here to access.
Third Rail Channels – Friday’s selloff set up a crash channel. The top line starts at xxxx on Monday, and ends near xxxxx on Friday. The market would need to break that to end the crash threat. Non subscribers click here to access.
Long Term Weekly Chart – Last week’s selloff keeps the major downtrend channel xxxxxx xxxxxx xxxxxxxx. Resistance has held. Long term indicators remain on the xxxxx xxxx. xxxx is downtrending support this week. If it holds, then another rally attempt should be forthcoming. But if it does not hold, the target would be the xxxxxxxx area, quickly. Non subscribers click here to access.
Monthly Chart – August ending below xxxx would set up a downtrend channel for September onward. Failing to clear xxxx at the end of August would allow for a drop to trend support around xxxx. The bottom of the new downtrend channel would be at xxxx in September. Non subscribers click here to access.
Cycle Screening Measures – The cycle screening aggregate was weak last week, but surprisingly, not as weak as Friday’s carnage would suggest. It leaves a mixed bag that, on the whole, suggests that there’s xxxxxxxx xxxxxxx xxxxxxxx xxxxx in the process of xxxxxx xxxxxxxx xxxxxxxx xxxxxxxx. On the other hand, the liquidity situation is dire, which suggests that this time will be different. A rebound on Monday would suggest xxx xxxxx xxxxxx xxxxx, while a continuation of the selloff would suggest xxxxxxxxx xxxxxx xxxxxxx. Non subscribers click here to access.
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.
I wrote the following in this Fed QT/Treasury Supply report on August 6.
8/6/22 Well, guess what. Time’s up. Party over. The Treasury has revised its issuance forecast as we knew it would. It will now be slamming the market with both coupon supply (notes and bonds) and T-bills. That’s the biggest difference. The Treasury had been paying down massive amounts of T-bills for months, stuffing cash back into the accounts of dealers, banks and money market funds. That game is now running in reverse. The Treasury is now sucking money out of the system from those same players. And the Fed isn’t replacing it. The cash that the Treasury uses to repay the Fed disappears from the firmament.
For the first 3 weeks of August the market decided to fight the Fed. The money didn’t come out of the Fed’s RRP fund, and the Fed sure wasn’t funding the buying, in fact the opposite. It was pulling cash out of the system. So it would appear that traders funded the rally with margin and bank repo, with a dose of short covering for good measure.
But when traders violate Rule Number One, eventually, they must face the punishment. I warned in other reports in the past couple of weeks that the clock was ticking and that reality was about to set it. It finally did on Friday. Non-subscribers, click here for access.
No doubt the selloff was helped along by a massive new T-bill issue totaling $60 billion on Thursday. I had penciled in about $40 billion per week in bill issuance, so that was a bit of a shocker. Then on Friday it had to absorb another $22 billion in long term Treasury coupon paper. Non-subscribers, click here for access.
Apparently, that $82 billion in paper to be paid for, put the stock market in a choke hold. When Powell affirmed the magic word, “No Pivot,” as if like magic there was suddenly no cash around to support stock prices. Only it wasn’t magic. There really was no cash. And there won’t be no mo any time soon. And now the players have awakened to the fact that there’s no reason to borrow on margin or put up other collateral to buy stocks. In fact, they’re probably out of collateral, or soon to be. Non-subscribers, click here for access.
Lee Adler
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