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Withholding Tax Collections Collapsed in August But BLS Data Didn’t Show It – Part Two

Lee Adler

Part 1 is here.

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.

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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.

Government finances also benefitted from a sharp drop in spending. The usual July deficit became a surplus. 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.

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Withholding Tax Collections Collapsed in August But BLS Data Won’t Show It

Lee Adler

Federal withholding tax collections declined in August. This was the second consecutive monthly decline after rising sharply and persistently throughout June.

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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.

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Swing Trade Screens – Good Week For Our Shorts Last Week, Adding More Now

Lee Adler

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.

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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.

Technical Trader subscribers click here to download the complete report.

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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.

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

I have added and adjusted stops on existing open picks. 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.

Technical Trader subscribers click here to download the complete report.

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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. 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.

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Freak Out Now Before It’s Too Late

Lee Adler

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.

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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 here would 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.

If support lines around xxxx break, then the next target would immediately be xxxx, and below that, xxxx. 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.

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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Warnings of August Liquidity Crash Come to Fruition – Here’s What to Do

Lee Adler

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.

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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.

The outlook for the next couple of months looks xxxx xxxx, except for … Non-subscribers, click here for access.

Here’s what to expect, when, and what to do about it. Non-subscribers, click here for access.

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Gold Miners Swing Picks

Lee Adler

While we wait for gold to do something, there’s action in the mines. Subscribers, click here to download the report.

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Over the past week the gold and silver mining stock screens yielded 24 charts with a second or third short term buy signal and just 4 with more than one sell signal. So I was expecting to come up with some buys. Non-subscribers, click here for access.

Upon visual review of those 24 with multiple buy signals,  I did. They were as follows: xxx, xxx, xxx, and, xxx. Non-subscribers, click here for access.

All were still in major downtrends but had good potential to complete big reversal patterns. The remainder of the 24 were too close to resistance in their downtrends to have the appearance of favorable risk/reward for a trade at this stage. Non-subscribers, click here for access.

The charts of the 4 stocks are below. Non-subscribers, click here for access.

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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. 

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Swing Trade Screens – Hit the Jackpot Last Week, New Shorts This Week

Lee Adler

The final list of double screened output for last week had 14  charts with second or third buy signals on Thursday and Friday. There were 78 charts with second or third sell signals to end the week.  That’s a lot of sell signals. Friday on a standalone basis had just 8 buy signals and 35 sell signals. The large number of repeat sell signals suggested that I should find a number of short sale candidates as I undertook the usual visual review of the charts that met the multiple signal criteria.

I wasn’t disappointed. I added 7 shorts to the list this week, to be tracked as of Monday’s opening price, as usual. They’re shown on the table below. Non-subscribers click here for access.

Technical Trader subscribers click here to download the complete report.

Last week I had 5 buys, including 3 oil and gas sector picks. They were huge winners, mostly on the strength of a big move on Friday. I’ll get to that below.

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

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.

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.

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.

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.

March was better. Picks closed in March had an average gain of 4% with an average holding period of 23 calendar days.

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%.

Last week one buy side pick was stopped out with a gain of 29%. That really saved August performance. Picks closed out in August so far have had an average gain of only 2.6% on an average holding period of 16 calendar days. My system struggled for most of the month, but all that changed last week. The average gain of open and closed picks was 9.5%, which was near a record for this system. The average holding period was 12 calendar days, less than 2 weeks! The performance is shown on the table below. Non-subscribers click here for access.

I have added and adjusted stops on the remaining picks.

Non-subscribers click here for access.

Technical Trader subscribers click here to download the complete report.

Subscription Plans

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.

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Stock Market Uptrend Cracks – Look Out Below

Lee Adler

Friday’s break, and this morning’s follow through in the pre-market, allow for the thought that the rally may be finished, but the evidence isn’t there yet. More work needs to be done.

Cycles-  The shortest cycles hit their projection and the market broke. However, the SPX only reached the low end of the 13 week cycle projection range. And both the 6 month and 10-12 month cycles still project to xxxx.

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So I’m on the lookout for xxxxx xxxxxx xxxx xxxx after this pullback phase is complete. It might make a new high. xxxxxxxxxx xxxxxxxxxxxxx xxxxxxxxxx prime time for the 6 month cycle high. If it comes before that, so be it, but at the moment there’s no sign yet that this is it. Non subscribers click here to access.

Third Rail Channels – The meltup channel finally broke last week, but there are multiple uptrend lines just below xxxxxx xxxxxxxxx xxxxxx xxx that should be support. The sharpest channel line starts the week at xxxx and rises to xxxx on Friday. They need to break to get anything significant going on the downside. I’d look for at least a bounce from one of those trendlines, and either a double top or lower high before a downtrend starts in earnest. If xxxx breaks, the next target for a pivot low would be xxxx. Non subscribers click here to access.

That resistance cluster xxxx-xxxx is still there. Obviously, they would need to clear that to extend the rally. If they do, the next target would be xxxx. Non subscribers click here to access.

Long Term Weekly Chart –  The market pulled back after breaching previously noted key trend resistance at xxxx to end the week well below that level. As a result longer term xxx signals xxxx xxxx xxxxx . There’s a chance that this is the beginning of a xxxx xxxxxxx xxxxxx, but there’s more xxxxx xxxxxxxxx xxxxx xxxxx xxxxxx. Non subscribers click here to access.

Monthly Chart – If the market stalls and rolls over here to end August below xxxx it would set up a xxxxx xxxxxx for September onward.  Failing to clear xxxx at the end of August would allow for a drop to trend support around xxxx. Non subscribers click here to access.

Cycle Screening Measures –   Friday’s pullback represents only the potential for a turn. None of the xxxxxx xxxxxx have xxxxxxxxx  yet. A down day Monday would xxxxx the process, however. Barring that, the patterns would remain very similar to March – April 2020. Non subscribers click here to access.

Technical Trader subscribers click here to download the complete report.

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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Still Waiting for Gold Dough

Lee Adler

Still waiting for confirmation of an upturn in the 9-12 month cycle. Until that happens, there’s still downside risk, with limited upside. Here’ are the parameters to watch.

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Mining Picks- As a result of the pullback, and my placement of tight trailing stops, all open picks hit their stops and were closed off the tracking list. The result was an average gain of 12.9% on an average holding period of 3½ weeks. Non-subscribers, click here for access.

I had a bias of expecting to see a few short term buys on visual review of the screens. But when I ran the screens, there were just 2 charts with repeat buy signals and 9 with repeat sell signals. This is better than last week when there were 3 buys and 21 sells, but it’s still not fertile picking grounds for buy side trades. Non-subscribers, click here for access.

These two negative weeks followed a preponderance of buy signals for the prior 4 weeks. Therefore, for now, I consider this a normal corrective phase. However, Thursday alone had 2 buys and 3 sells, not a ringing endorsement of a short term bullish outlook. Non-subscribers, click here for access.

Upon visual review, the two buys did not look at all bullish, so we’ll be sitting out this week with no picks. We wait. Non-subscribers, click here for access.

Averages assume 100% cash, no margin, no options. The use of margin or options will magnify both gains and losses. See disclaimer. Non-subscribers, click here for access.

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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. 

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Has Rule Number One Been Repealed?

Lee Adler

Rule Number One is “Don’t Fight the Fed.” But Wall Street and its willing herd have done just that for the past month.  Stocks have continued to rally, and bonds have held their own, both in the face of increasingly tighter macro liquidity as the Fed whispers easy while tightening the noose.

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A big reason for the rally is that the stock market became so oversold relative to the liquidity trend in May and June. That condition warned us of the potential for a sharp rally. The market had become too stretched on the downside. It was enough to drive persistent short covering, and ultimately margin buying, as Wall Street searched frantically for excuses to buy stocks. Non-subscribers, click here for access.

Sure, the rally feels surprising and frustrating, but the warnings were there, and I posted them in the last two CLI updates in May and June. Non-subscribers, click here for access.

May 23-

…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.

…with the oversold condition comes the likelihood of vicious vertical spike rallies along the way, as overconfident short sellers load up on their positions.

…we need to be on the lookout for the start of a spike rally. If you see it, believe it.

June 28-

The previous lows were in the context of a bubble market. This is a bear market.  That doesn’t rule out a sharp rally. In fact, I think we should expect to be surprised on the upside.

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Meanwhile, the Street and its media handmaidens grasped for straws, and they found them. They found them in the “moderating” CPI report, and in the Fed meeting minutes. From these reports, they inferred that the Fed would err on the side of ease instead of constant tightening. Naturally, they misread the data and the fact that the Fed minutes are propaganda. Non-subscribers, click here for access.

So much for the narratives. The fact is that the market can only run counter to the macro liquidity trend for so long before the short covering and animal spirits that drive margin buying are exhausted. And if Wall Street is engaging in fantasy, as I think it is, then at some point, probably soon, a moment of recognition will set in. The selling will start, and the rally will reverse. Non-subscribers, click here for access.

How do we know when? That’s a matter for the technical analysis. Non-subscribers, click here for access.

The TA that I cover in the weekly Technical Trader reports has been remarkably accurate on the broad market, but less so on the individual swing trade picks, where it’s been more miss than hit in the last month. This dichotomy between the micro and macro TA is an indication of a fractured market that is not as strong the gain in the major averages suggests. There’s a lot of scurrying around as traders look for the next hot stock or the next short squeeze. A few are hitting big, while others pull back or churn in a range. That’s enough to power the broad averages higher. Non-subscribers, click here for access.

The technical projections for the market averages have pointed to xxxxxxxxxx xxxxxxxxxx xxxxxxxxx range for several weeks. They’re xxxxxxx xxxxxx xxxxxx. Non-subscribers, click here for access.

Longer intermediate swing projections point xxxxxx, but I’m skeptical. The liquidity situation is turning more bearish as the Treasury pounds the market with new supply and the Fed holds firm on QT. The Fed is set to tighten the screws even more in a couple of weeks. It announced that they will double QT to $95 billion per month in September. Non-subscribers, click here for access.

Regardless of Wall Street’s fantasies, neither the markets nor the inflation data, nor the economic data, will keep the Fed from its appointed rounds. The strength in all three will keep the Fed on track. It is likely to stay on that track until something breaks. The Fed is never proactive. It is always reactive. It drives in the rear view mirror. The Fed will only loosen after the crisis, not pre-emptively. Non-subscribers, click here for access.

On top of the Fed tightening, the US Treasury will be in the market with even more borrowing to fund the new spending program just signed into law. That borrowing will suck cash out of the financial markets and pump it into the economic stream. It sets up conditions where stronger than expected economic data could continue to surprise the economists, the Street, and the Fed. So what would be the Fed’s excuse to stop tightening? Non-subscribers, click here for access.

Furthermore, despite all the speculation that the Fed will take its foot off the brake, sticky CPI at 8.5% will hardly allow that. The idea that the end of tightening is near is wishful thinking. Especially with another surge of government spending on the way. So keep in mind that the Fed drives in the rear view mirror. The Fed will continue to remove money from the system. And the currently strong financial markets will only encourage that. Eventually that will result in a crunch, and the market will fold. Non-subscribers, click here for access.

The time to reverse course and get short for trades is coming xxxx to a trading screen near you. The TA will tell us when. In the meantime, riding the current wave xxxxxxx xxxxxxx xxxxxx. Non-subscribers, click here for access.

That’s especially true for the bond market where yields are on the razor’s edge. Wall Street has been spreading a lot of fertilizer about the 10 year yield going to 2%. But another couple of upticks in that yield now around 2.80-2.85 will xxxxx xxxxxx xx xxxxxxxx xxxxxx, and probably a xxxxxxxxxx xxxxxxxx xxxxxxxxx xxxxxxxxx xxxxxxxx. Non-subscribers, click here for access.

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