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Author: Lee Adler

Stocks Are Ahead of the Curve

Lee Adler

The gradual flattening of the CLI is now visible. Starting in June, it should turn negative. The Fed will begin literally removing cash from the banking system and the markets in June, when it starts shrinking its balance sheet. That will have ripple effects in at least 3, if not all 4, or the components of the CLI.

In the meantime, however, stock prices have gotten ahead of the curve. They are now oversold versus the historical norms of the liquidity band over the past 13 years. Does it matter? Or is this a new paradigm?

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No question it’s a new paradigm. The Fed has ended, for the foreseeable future, its previous 12 year campaign of aggressively adding money to the financial markets in its program of inflating asset prices.

It had a trial run of this policy once before from October 2017 to December 2018, but stocks were bubbling then and the ECB and BoJ were still printing massively. That help from the rest of the world kept US markets liquified, resulting in a series of overbought readings that lasted 22 months.

The market cracked a bit in the middle of that tightening experiment, and finally fell apart when Covid 19 came around. The Fed then panicked and opened the QE floodgates. Now, we’re reaping the whirlwind from that.

As the Fed persists in tightening, in its fight against CPI inflation, my thought is that if the market can stay overbought versus liquidity for most of 22 months, it can stay oversold against it for just as long. However, with the oversold condition comes the likelihood of vicious vertical spike rallies along the way, as overconfident short sellers load up on their positions.

When they do, and the market starts to rally, they’ll spontaneously combust, driving inexplicably big advances in stock prices. Wall Street will come up with all kinds of recovery narratives to justify those rallies, but they will merely be, as Joe Granville called them, of the genre, “The Rally that Fools the Majority.” I’d make that plural, because of the probability that there will be more than one of those before this bear market is finished.

This report lays out in graphs and clear analysis, just what you should expect in the weeks and month ahead, along with how I’m approaching both the short term tactical aspects, and the longer term strategic approach for both stocks and bonds.

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Market Indicators Show Crash Risk Remains Intact

Lee Adler

Last week’s low took out the prior low. The market has been making lower highs and lower lows for over 5 months. That’s a bear market in my book, the Wall Street captured media’s stupid 20% rule notwithstanding.

The breakdown of the top pattern has a conventional measured move price target of xxxx (non subscribers click here to access)..  That’s just for this first leg of the bear market.

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Intermediate cycle projections point to xxxx (non subscribers click here to access).

A break of xxxx (non subscribers click here to access) should signal acceleration of the crash.

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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. 

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Gold Miners Make Short Term Bottom, But Wait, There’s More!

Lee Adler

I’ve gone bottom fishing, adding 5 mining picks to our one lonely long added last week. The good news is that we completely avoided the crash. But will this move back in be too early, or just right? Download this report to see the charts of the stocks that look ready for something, here.

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Buys Beat Shorts Again in This Week’s Swing Trade Screens

Lee Adler

On the week, buy signals overwhelmed sell signals, thanks to Friday’s rebound, but they had the lead earlier in the week as well. The final score for the week was 186 Buys to 125 Sells. That compares with the prior week’s  235 Buys to 147 Sells and 114 Buys to 118 Sells the week before that. However, on Friday alone, there were 101 buys and just 13 sells. This suggests an up week ahead.

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The screen results come from a universe of approximately1200-1500 stocks daily that meet the criteria of trading above $6.00, and with average volume greater than a million shares per day. The final numbers show the number of stocks with at least one buy signal or sell signal during the week.

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. The final lists this week resulted in 48 chart pick candidates on the buy side and 3 on the sell side.

I reviewed the charts from the final output visually. From that review, I chose 3 buys and no shorts. For the second straight week, all the buys were in the energy business.

Last week we started with 23 picks on the list. There were 3 buys. The rest were short sales. Two picks hit their trailing stops and were closed as of the stop price. I elected to close out one on Monday’s open. Including those and the picks still open at the end of the week gave us average gains of 1.9% with an average holding period of 13 days.

Closed picks in May have so far averaged a gain of 2.9% on an average holding period of 11 days.

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. Normally that doesn’t happen to often, but we must roll with the punches when it does.

March was better. Picks closed in March had an average gain of 4% with an average holding period of 23 days. The 5 picks closed out in May so far had an average gain of 4.3% on and average holding period of 12 days.

The percentage gain is based on 100% cash positions, with no margin and no use of leverage or options.

This week we start with 23 picks including the 3 new ones. 17 of the 23 picks are short sales.

I’ve added new stops to the picks from last week, and adjusted stops on the remainder. This week’s new picks will be added without stops as usual. I like to give them breathing room at the beginning, and manage risk by having multiple picks.

The new picks, along with picks that remain open, and those closed out last week, are shown on the table below. Charts of new and open picks are below that.

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Market Rebound Still Leaves Crash Risk Intact

Lee Adler

Friday’s rally brought the market back above downtrending support lines, but did not break any significant trend resistance lines. I must assume that the bearish intermediate trend remains in force until more evidence to the contrary.

Here’s what we need to look for, including downside price and time projections and key resistance levels that must be broken to break the downtrend. Barring those breakthroughs, crash risk remains. (Non subscribers click here to access).

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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. 

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Dealer Positions Show It’s Not Getting Better and It Should Get Worse

Lee Adler

The conditions for a rally in bonds were there, only the will was missing. That finally showed up last week. Meanwhile, the dealers finally meaningfully increased their short positions in Treasury futures. Voila! There were enough shorts, and enough short covering, to trigger a rally upon the reappointment of the Chairman of the Fed Moral Hazard Bubble, Jerome Powell.

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Of course, any hopes on which this rally are based, are ill placed. Those hopes will not come to fruition. The Fed is hellbent on continuing to tighten, as it must, to meet its mandate to control consumer inflation. It is a long, long way from meeting that mandate.  It’s a long way from engineering any rescues of its bank clients and market fronting strawmen, the Primary Dealers.

Meanwhile the parent companies of the dealers, the big banks, have hundreds of billions of dollars of losses buried in their bond holdings. These are in their long term portfolios, which are not marked to market.

As the Fed begins actually withdrawing cash from the banking system via its “Quantitative Tightening” or QT program, some of these holdings with losses will need to be liquidated. Depending on how the banks structure their bond inventory accounting we may or may not see those losses. But whether we see them or not, they’ll be there, and they will place further strain on the banking system, pressuring the banks to deleverage by selling assets.

That includes their Primary Dealer subsidiaries, who have been reducing, and will likely continue to reduce, their bond inventories. Those inventories have already collapsed, both from selling and from mark to market losses, which are required for dealers.

While this has been going on, there’s been another factor which should have played an ameliorating role. It hasn’t. And we now know that it won’t.

As a result, after a brief respite, market conditions will soon get worse. Here’s why, along with how it will play out, and what to do about it.

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Catch a Falling Knife

Lee Adler

Cycles are still in gear to the downside in both the metal and the miners and cycle projections still point lower. But there was one mining stock that I liked enough to restart the chart pick list. It’s bottom fishing, but when the sector turns, this big miner looks poised to lead.

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Gold Trader Publication Note

Lee Adler

Thanks to an appointment I have with the Government of France on my schedule for today, I will push back posting of the Gold Trader update until early Wednesday.

Not that there’s anything to report. 😉

Thanks for your patience and support. See you tomorrow!

Lee

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Buys Beat Shorts in This Week’s Swing Trade Screens

Lee Adler

There were more buys than sells in last week’s daily screens. That may be because there so many charts that had triggered sell signals in the prior three weeks, and they were still playing on the sell side. But whatever the cause, the final score for the week was 235 Buys to 147 Sells. That compared with 114 Buys to 118 Sells the week before. However, on Friday alone, there were just 44 buys and 71 sells. Most of the time, Friday tends to set the tone for the next week.

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The screen results come from a universe of approximately1200-1500 stocks daily that meet the criteria of trading above $6.00, and with average volume greater than a million shares per day. The final numbers show the number of stocks with at least one buy signal or sell signal during the week.
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.

The final lists this week resulted in 43 chart pick candidates on the buy side and 17 on the sell side. Again, the plurality of buy signals may have merely begin that there were so few charts that had not already gone to the sell side in recent weeks.

I reviewed the charts from the final output visually. From that review, I chose 3 buys (all oil and gas related) and 4 shorts to add to the list, shown on the table below.

Last week we started with 21 picks on the list. There were no buys. 21 were short sales. That was an unprecedented tilt in number and unanimity. Five picks hit their trailing stops and were closed as of the stop price. Including those and the picks still open at the end of the week gave us average gains of 2.8% with an average holding period of 9 days.

I’d like to repeat that every week. Pretty soon we’d be talking real money. 😋

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. Normally that doesn’t happen too often, but we must roll with the punches when it does.

March was better. Picks closed in March had an average gain of 4% with an average holding period of 23 days. The 5 picks closed out in May so far had an average gain of 4.3% on and average holding period of 12 days.

The percentage gain is based on 100% cash positions, with no margin and no use of leverage or options.

This week we start with 23 picks including the 7 new ones. 20 of the 23 picks are short sales.

I’ve added new stops to the picks from last week, and adjusted stops on the remainder. This week’s new picks will be added without stops as usual. I like to give them breathing room at the beginning, and manage risk by having multiple picks.

The new picks, along with picks that remain open, and those closed out last week, are shown on the table below. Charts of new and open picks are below that.

Technical Trader subscribers click here to download the complete report.

Non-subscribers click here for access.

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Big Tops Lead to Big, Bad Bear Markets

Lee Adler

This market is in the process of completing a huge top. Bear markets that are preceded by huge top patterns tend to last at least 18 months and may go on for as long as 30 months before reaching a final bottom. 1929-33 was an outlier at 42 months. That one lost 90%. We’ve had a couple of 50% off sales in the past 90 years since then.

Cycles – The 13 week cycle appears to be in a down phase headed for a low in xxxx xxxx or the xxxx xxxx xxxx xxxx, with a projection range of xxxx-xxxx (Non subscribers click here to access). 6 month and 10-12 month cycles seem to be in down phases that are out of sync with where they should be. That implies that the next longer cycles are in bear markets and are skewing the big intermediate swing cycle waves lower for longer.

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Third Rail Chart – The market would need to end the week above xxxx to break the 4 crash channels currently defining the trend. And even if they are clear of xxxx on Friday, that only gives them room for a bigger bounce while not completing a reversal pattern (Non subscribers click here to access)

On the other hand, a daily close below xxxx would open the floodgates on the downside. The proximate target would then be xxxx, and below that xxxx. Such a breakdown would complete an enormous top pattern with a conventional measured move target of xxxx (Non subscribers click here to access).

Long Term Weekly- The 3-4 year cycle top is nearly complete. A breakdown below xxxx (non subscribers click here to access) would confirm. This also looks like a 7 year cycle top. Confirmation will lag.

Monthly Chart – Trend support broke at the end of April. They’d need to end May above xxxx (non subscribers click here to access) to recover within that channel. Trend support is indicated around xxxx in May. If that doesn’t hold, then the target would be a support convergence around xxxx, with the next target xxxx if that fails.

Cycle Screening Measures –  These measures rebounded a bit last week but remain negative overall, and in a xxxxxxxxxx (non subscribers click here to access) pattern on the chart..

Technical Trader subscribers click here to download the complete report.

 

Subscription Plans

Not a subscriber? Get price and time targets, and weekly swing trade chart picks, risk free for 90 days!  

These reports are not investment advice. They are for informational purposes, intended for an audience of investment and trading professionals, and other experienced investors and traders. Chart pick performance changes week to week and past performance may not indicate future results, as you know. Trading involves risk, and these reports assume that you understand those risks and manage them according to your tolerance. 

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