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Author: Lee Adler

Gold Set For Breakout, Mining Picks Turn Green – LINK CORRECTED

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The strong push last week has turned the short to intermediate term outlook bullish. The numbers now portend … (subscriber version). Near term projections point to (subscriber version). The 10-12 month cycle projection points to (subscriber version).

Over the 5 days Feb 9-15, 33 charts of the 52 gold and silver mining stocks that I track had at least one buy signal. Just 19 had at least one sell signal. That’s a bullish tilt. However, looking at a screen of all 52 stocks in the group on Tuesday, there was just 1 buy signal and 16 sells, suggesting that a consolidation or pullback is due over the next week or two.

I screened those with prior buy signals over the past week for buy signals that triggered on Monday or Tuesday. There were 6, down from 25 the previous week. This is still solid considering that so many had triggered multiple short term buy signals the week before. Those with earlier multiple buy signals will mostly need to go through a complete short term cycle before coming around to the buy side again.

I then gave 6 that had second buy signals the eyeball test. Two were penny stocks, which I eliminated. I chose one that I liked the best to add to the list as shown on the table below.

That will leave us with 8 open selections. Of the 7 that were active last week, all had small gains, with an average gain of 4.0% and average holding period of 13 calendar days. I’ve added or adjusted stops on all picks that were on the list last week.

See, analysis, table of picks and charts (subscriber version).

The strategy and tactics suggestions in this report are for informational and entertainment purposes, and illustrative of one approach. Nothing in this report is meant as personalized investment advice and you should not construe it as such. No representation is made that it is the best approach, will be profitable, or suitable for you.

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New Shorts To Be Our Bear Valentines

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We came into last week with an empty list thanks to inconclusive screens and chart patterns. That was probably a good thing, considering the sharp reversal on Thursday.

The raw daily data for last week as a whole tilted strongly to the sell side thanks to Thursday and Friday’s action. For the week ended Friday there were 63 charts with at least one buy signal and 195 with at least one sell signal. On Friday alone, there were 11 buys and 114 sells.

I screened just the lists of previous daily buys and sells for final signals on Thursday and Friday, looking for a progression of signals through the week. The final lists resulted in just one buy signal, a gold miner, and 14 charts with a sell signal on Thursday or Friday, following sell signals earlier in the week. I eyeballed these 15 charts for ones to add to the chart pick list for this week.

First I want to mention the one buy, XXXX (subscriber version. I loved the long term pattern, but the setup was not a low risk entry short term, so I did not add it to the list. I wanted to, but since this is a short term swing trading exercise, and this looked short term risky, despite its long term potential, I didn’t. Take that for what it’s worth. If you’re a gold bug, you’ll probably find it interesting.

Now, the short sale candidates… Surprisingly, there were few with great low risk setups. Of the 14 final sells, most had been in downtrends for at least several weeks, and were near major support. They could break down on this move, but I’d rather wait to short them on the next rebound. If this is the bear market that I think it is, there will be many better opportunities ahead to go short. And if it’s not the bear market that I think it will be, the list’s risk exposure will be limited to the two stocks I’ve selected, shown below. Charts below.

The table of new picks, as well as open and closed picks, last week along with charts of new and open picks are in the report  (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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Beware! The Market Has Followed My Script

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xxxx xxxx xxxx (subscriber version)

Why beware? Well, usually, when the market does exactly what I have posed as the likely outlook for a few weeks, the time is about due for us to get a good slap in the face as a reminder to stay humble.

The other reason is that if I continue to be right, this market will get a lot worse fast. That’s great if you are short stocks, and ranges toward terrible depending on how long you are. If you are a “long only,” money manager and you’re all in cash, then you might end up feeling pretty good too.

But the temptation will be to buy the dip. The success of that will depend on both your market timing and your holding period horizon. This is not your same old, same old, Fed policy driven bull market any more.

Remember Rule Number One. Don’t fight the Fed.

Cycles There are signs that 13 week and 6 month cycles xxxx xxxx xxxx (subscriber version). However, xxxx xxxx phases are also periods of higher vulnerability for sharp declines into the low. Short term cycles are xxxx . The 4 week cycle is in a xxxx xxxx. The 6-7 week cycle has not xxxx xxxx but it appears to be xxxx xxxx xxxx. That suggests an xxxx xxxxxxx xxxx if the market follows through on xxxx xxxx .

Third Rail Chart – All of the conditions of the outlook we had for the last two weeks have been met. Now, there’s an interim support level at 4390-4400. If it holds, xxxx xxxx xxxx (subscriber version). If it breaks, the next area to look for support would be around xxxx xxxx.

Long Term Weekly– The market made a typical intermediate term xxxx xxxx xxxx (subscriber version). by breaking a long term wave channel, then xxxx xxxx xxxx. Given the rollover in the 3-4 year cycle indicators, the rebound in the market suggests only a limited xxxx xxxx xxxx.

So far, there’s no material change in the long term projections of xxxx xxxx xxxx (subscriber version), but I now believe that they are wrong and will not be met. I’m giving these no weight, and instead focusing on the price patterns, support breaks, and cycle indicators to show us the way.

Monthly Chart – The market now needs to be above xxxx (subscriber version) at the end of February to get back into the two uptrend channels. Failure to do that would imply the beginning of top formation. If that does not happen, the target in February would be (subscriber version).

Cycle screening measures are in a short term bearish configuration, with the intermediate term leaning (subscriber version). Market weakness this week would (subscriber version). A rally this week would suggest (subscriber version). A bear market 6 month cycle up phase would be much shorter and cover less ground than a bull market up phase.

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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. 

Fed Gets the Inflation It Wanted, But Wait There’s More!

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The Federal budget deficit is shrinking as the economy experiences an inflationary boom. This is just what the Fed was hoping for, but inflation has obviously gotten away from them. It will only get worse as the lagging rent component of CPI will push the total index higher, even if and when the other components begin to moderate.

The rent of shelter and owner’s equivalent rent that’s based on it make up about 40% of Core CPI. Those two components are not based on real time market rents. They’re based on a survey of renters, asking them what they’re paying. The OER is derived from that as a base, and then adjusted from time to time by asking homeowners how much they thought their houses would rent for… As if they knew.

This isn’t merely a dumbass way to measure rent inflation, it’s fraud. Contract rents are usually adjusted upward at a rate far below the increase in market rent. That’s because landlords like to keep good tenants in place rather than incur the friction costs of raising the rent too much and having them leave. It costs money to find a new tenant, and spruce up the unit.

So when the BLS asks tenants what they’re paying, it does not get the full effect of the currently soaring rents. Apartment List does a national rent report showing rents up 17.8% year over year. BLS has imputed the rent component of CPI at 4.1%. At 40% of core, this difference means that the BLS is understating total Core CPI by roughly 5.5 percentage points. That’s obscene. It’s an affront to human intelligence.

But CPI was never intended to measure inflation. That’s why they took home prices out of the index in 1982. CPI was always intended as a tool for indexing government wages and benefits, and industrial labor contracts. In the 1970s indexing got too expensive as home prices surged. So they worked out a way to remove house prices and falsify the housing component of CPI beginning in ‘82.

Now, the Fed is devaluing the mountain of debt out there. Bond holders will get a small fraction of their purchasing power back if they hold to maturity. And if they don’t, and sell along the way they’ll get killed on the capital loss as a result of collapsing bond prices.

We saw this coming since about a month after the bond market turned in August 2020. I don’t think it will get better any time soon, although certainly there will be bond rallies from time to time. Still consistent with my message of the past 18 months, they’ll be xxxx xxxxx (subscriber version).

Meanwhile, the budget deficit will narrow as long as the economy booms. That will reduce Treasury supply. But it won’t reduce it to $20 billion a month. Maybe it will fall to an average of $60 billion per month as some forecasts suggest. Maybe it won’t. I don’t know. The economy is booming at the moment, and there’s no reason yet to expect a slowdown.

But it doesn’t matter. Because the market has shown that it can only absorb $20 billion per month while the Fed kept bond prices stable and suppressed by buying or funding $180-$200 billion per month in net new supply.

Now, if the Fed isn’t buying, and the market can only absorb $20 billion per month, with supply even as low as $60 billion, that’s $40 billion in excess supply that the market can’t take at a stable bond price.

Therefore, bond prices will xxxx xxxxx (subscriber version) and so will stocks, as they get xxxx xxxxx . They’ll be xxxx xxx xxxxxxxx xxxxxxxxx on leveraged funds who hold both stocks and fixed income. And they’ll get xxxx xxxxx because eventually rising yields will force some money managers to xxxx xxx xxxx xxxxx.

There will be no xxxx xxx xxxxx, except to xxxx xxxxx (subscriber version). I’ll continue to look for xxx xxxx trading opportunities in the Technical Trader reports. I’ll leave xxx xxxx the bond market to whale hedge fund professionals.

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Waiting for Gold Oh

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Over the 4 days Feb 1-4, 45 charts of the 52 that I track, had at least one buy signal. That’s promising. I screened those with prior buy signals for buy signals that triggered on Monday. There were 25, indicating signal progression through several short term time frames. I then gave those the eyeball test. Many of them looked like they could move higher. I chose 3 that I liked the best to add to the list as shown on the table below. That will leave us with 7 open selections.

Looking at a screen of all 52 stocks in the group on Monday, there were 35 buy signals, before applying the filter of those that had signaled previously last week. It suggests that the group should be higher in a week or two than it is now.

See, analysis, table of picks and charts (subscriber version).

The strategy and tactics suggestions in this report are for informational and entertainment purposes, and illustrative of one approach. Nothing in this report is meant as personalized investment advice and you should not construe it as such. No representation is made that it is the best approach, will be profitable, or suitable for you.

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Patience, Patience! Grrrrrr….

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There was only one stock left on the list last Tuesday after the remaining shorts from the week before were closed out from the list on the open. That last one hit its stop later in the week, leaving us empty handed. The 5 picks that were closed averaged a 1.9% gain on a 12 calendar day average holding period.

The raw daily data for last week as a whole tilted strongly to the buy side. For the week ended Friday there were 230 charts with at least one buy signal and 96 with at least one sell signal. On Friday alone, there were 15 buys and 28 sells.

On the four days Monday-Thursday, there were 222 charts with at least one buy signal and 70 with at least one sell signal. This was the universe that I then screened with Friday’s action to find strong candidates to add to the list, whether long or short. Despite the 222 buys leading up to Friday, on that day there were only 7 that had a second buy signal indicating signal progression. I looked at those and didn’t find any appealing. So I sat out the buy side again.

Of the group of 70 with prior sell signals, only two triggered another sell on Friday, and neither was interesting. So no new shorts this week either. Reminds me of the old, “Patience, jackass, patience,” joke that we old fogeys learned in sixth grade. Ha ha.

There are times when a lack of clarity means that it’s just best to sit on your hands and not lose money.

The table of open and closed picks along with charts of open picks are in the report  (subscriber version only).

Technical Trader subscribers click here to download the complete report.

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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Raggedy Market Has Ambitions

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The cycle picture is mixed but leaning toward starting xxxx xxxx xxxx (subscriber version). phase. How far will it get? My guess is “not very.” Nor is there much indication of significant near term xxxx xxxx xxxx (subscriber version).  Just beware if the market is weak early this week. That would suggest structural problems that could lead to xxxx xxxx xxxx . Crashes happen when apparent bottoms drop out.

Here are the particulars.

Cycles are now opposed. The outlook is more bearish if the market xxxx xxxx xxxx (subscriber version). , more bullish if not. The 10-12 month, 6 month, and 13 week cycles all still appear to be xxxx xxxx xxx. The two longer cycles hit initial downside projections, but xxxx xxxx xxxx. The 13 week cycle projection is still xxxx. The 6-7 week and 4 week cycles are in up phases, with a 4 week cycle peak due now.

The 6 month cycle low is ideally due between xxxx xxxx xxxx (subscriber version). Strength early this week would suggest that the 6 month cycle xxxx xxxx xxxx.

Third Rail Chart- The downtrend is intact for now. It would need to clear xxxx this week to break the first downtrend channel. Then subsequently it would need to break xxxx to get something more bullish going. On the other hand, a daily close below xxxx would signal that more declines are likely. A close below xxxx would break a long term uptrend. A close below xxxx would confirm the bear market.

Long Term Weekly- The market made a typical intermediate term bottoming signal by breaking a long term wave channel, then recovering within it. Given the rollover in the 3-4 year cycle indicators, the rebound in the market suggests xxxx xxxx xxxx (subscriber version)

So far, there’s no material change in the long term projections of xxxx xxxx xxxx (subscriber version), but I now believe that they are wrong and will not be met. I’m giving these no weight, and instead focusing on the price patterns, support breaks, and cycle indicators to show us the way.

Monthly Chart – The market now needs to be above xxxx at the end of February to get back into the two uptrend channels. Failure to do that would imply the beginning of xxxx xxxx xxxx (subscriber version). If that does not happen, the target in February would be xxxx xxxx .

Cycle screening measures made a lower high than the December and January peaks, at least so far. The prior low was also lower than the previous one. Therefore the intermediate term pattern xxxx xxxx xxxx (subscriber version) However, other indications are more bullish. The outlook is therefore xxxx xxxx xxxx . If the rally xxxx xxxx xxxx more bullish and that should play out into xxxx xxxx xxxx (subscriber version). If the market declines early in the week, the numbers will turn negative again and confirm the bear market.

The cumulative cyclical breadth index stopped confirming the bull market in August 2020. This shows concentration of buying in fewer and fewer big stocks. Such long periods of negative divergence between market breadth and price indexes often precede bear markets. I will keep you posted on how the pattern is playing out this time.

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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. 

Don’t Be Fooled, The Economy is Still Growing And Still Bearish

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Withholding Tax collections remained strong in January. A sharp drop in the year to year change was due to an increase in the base of comparison a year ago, and is not a sign of economic weakening. At least not yet.

Withholding collections should be at or near the trough of their usual 2-3 month cycle. So the ADP private payrolls collapse notwithstanding, and regardless of what the BLS says this morning, jobs growth is not decelerating. At least not yet.

But even if the economy is strong and the market must only absorb $80 billion per month of expected new supply versus the $$150 billion -$200 billion per month of the past couple of years, $80 billion is still more than enough to disrupt the markets if the Fed isn’t buying.

Here’s why (subscriber version).

We know that the Fed was usually absorbing or funding about 85-90% of total supply, leaving the market to absorb the rest. That was enough to suppress the 10 year yield at or below 1.3%. At the time, new issuance was averaging around $200 billion per month. So the market was only absorbing $20-30 billion per month, outright. The Fed was buying or funding the rest.

When the debt ceiling was reimposed last year, supply was restricted, but the Fed maintained QE at the same pace. That meant that it was funding more than 100% of supply for a couple of months. That excess cash was sloshing around in Primary Dealer accounts. They put it to use by accumulating, marking up, and distributing stocks to a fevered customer base of institutions, hedge funds, and small traders. That caused the meltup in stock prices.

The arithmetic on Treasury supply versus market demand tells us that the average supply of $80 billion per month is more than the maximum of $30 billion per month that buyers were absorbing directly while holding bond prices stable. In other words, $30 billion in supply was what the market could bear without prices falling and yields rising. The Fed subsidized the rest.

Hence, without Fed buying,we should expect  …. (subscriber version).

And that’s with an expanding economy and growing tax revenues. If the economy contracts on the heels of market dislocations, that will only exacerbate the situation.

In order to absorb the Treasury supply, dealers, investors, and traders must either take on more debt, or liquidate some of their existing holdings, whether Treasuries or stocks. I suspect, based on the evidence of the past two months, that …. (subscriber version). For that reason, I’m focused on selecting swing trade chart picks on  …. (subscriber version). in the Technical Trader weekly reports.

I’ll keep you updated on the developments and outlook. Get the full story in the subscriber version.

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Gold is Clueless

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Gold’s trading range is getting thinner, promoting violent moves within the range.

On the mining stocks, over the past week 33 charts had at least one buy signal and 39 had at least one sell signal. That means that many of the 52 stocks that I track in the sector had whipsaws. I screened each group with prior buy signals for buy signals that triggered on Tuesday. There were 24, which I then gave the eyeball test.

See, analysis, table of picks and charts (subscriber version).

The strategy and tactics suggestions in this report are for informational and entertainment purposes, and illustrative of one approach. Nothing in this report is meant as personalized investment advice and you should not construe it as such. No representation is made that it is the best approach, will be profitable, or suitable for you.

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Just Wait Till Next Week!

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Trailing stops took out most of the chart picks, which were all on the short side. I’ll consider the rest to be covered at the opening price today. The rally took back about half the profit from the previous week. At Monday’s close the average gain was 4% and the average holding period was 9 calendar days. That’s assuming all cash, no margin, no options, no leverage of any kind.

The raw daily data for last week as a whole ripped to the buy side, obviously. For the week ended January 31 there were 209 charts with at least one buy signal and 93 with at least one sell signal. This was the universe that I then screened with Monday’s prices to find strong candidates to add to the list.

On Monday, the unfiltered data gave us 95 buys and 14 sells. Of those, there were only 9 buys and one sell that were in the universe of charts that had rendered signals the week before. On visual review, I did not feel that any of them were worthy of going on the list this week.

As a result, after closing out the remaining shorts we’ll have an almost empty list, with just one remaining short with tight stops.

It will be interesting to see if the market leaves us in the dust, having missed the turn at the low.

Wait till next week!

The table of open and closed picks along with charts of open picks are in the report  (subscriber version only).

Technical Trader subscribers click here to download the complete report.

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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