As wild short term volatility chews up swing traders and spits them out, the market averages remain in an uptrend, and look poised to move higher. But fewer stocks will lead the way. Most may not participate. Technical Trader subscribers click here to download the complete report.
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2/16/21 Every week I run technical stock screens covering all NYSE and NASD stocks trading above $6 and averaging more than 1 million shares a day. This typically results in between 15 and 50 charts to review visually. I’m looking for low risk, high reward price structures, which I’m not smart enough to program into the screening process. But it’s ok. I like to look at charts. 😊
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Volatile rangebound trading is a meat grinder for swing trades. Last week lived up to that. List performance slipped to an average of +0.2%, down from +2.1% the week before, on an average holding period of 10 days, up from 8 days the week before. In trending markets this number would normally be around 13-14 days. The percentage change assumes cash trades, no margin, no options.
10 picks hit stop triggers, leaving 8 on the list. All are longs, and all look well positioned for additional gains, but I have kept stops tight, just in case. I have adjusted most stops.
Every time there’s a critical problem in the banking system due to banker malfeasance, the Fed steps in to paper it over and reward the criminals.
That’s why we focus on the Fed more than anything else. Regular review of the banking indicators was useful once upon a time. The Fed has rendered them irrelevant. But I promised to keep an eye on them, and it has been 5 months since we last looked. That’s enough time that, if anything material has changed, we need to know about it. So herein is a review, our first since last December.
In this report, I highlight the charts. Because there are so many, I’ve attempted to minimize the verbiage. I talk too much. The charts really speak for themselves.
The bottom line is that the system remains extremely vulnerable to a decline in Treasury prices that is coming in xxx (subscribers only). Likewise, the return of optimism in commercial real estate is problematic. The banks are taking no precautions. There’s no sign of recognition of the looming losses.
It means that the entire banking system could be destabilized in xxxxx (subscribers only). The Fed will have to act, massively. History shows that the Fed won’t act in time to prevent a breach of the system. History also shows that the Fed has the power to ultimately make its actions give the appearance of stabilization, leading to the return of animal spirits.
But I don’t know if it will work yet again, and we can at least expect a significant break first. So here’s what I would do (subscribers only).
Now here’s a review of the banking indicator charts.
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A 13-17 week cycle high is due for gold, with a projection of xxxx-xxxx (subscribers only), but the down phase should be benign given the apparent strengthening of the 9-12 month cycle. There’s no longer a projection on that cycle. The 6-7 week cycle projection has risen to xxxx. (subscribers only)
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In the mining stocks, short term cycles remain in up phases, and the 13 week cycle appears to have shifted into trending mode. Cycle projections have risen, with xxx-xxx (subscribers) the likely short term target. The 10-12 month cycle now projects to xxx (Subscribers) in the third quarter.
I have added 5 new miners to the chart pick list. Try Lee Adler’s Gold Trader risk free for 90 days!
The balance between QE and Treasury supply has gotten even more bullish and will remain so until xxxx (subscribers only). This should provide a boost for stocks. It should keep the Treasury selloff at bay until xxxx (subscribers only).
I have previously made the case for the Treasury to run out of money in xxxx (subscribers). If that estimate is correct, the outlook will turn negative in xxxx (subscribers). But for now, bullish liquidity forces remain in place, outside of the usual month end supply pressure.
As delayed tax receipts come in, in May, the Treasury will have even more cash for paydowns. The rest of May into mid June could be very bullish as a result. A selling opportunity for both stocks and bonds will arise as the Treasury approaches the point where its cash hoard is used up.
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I have always been reluctant to post midweek updates. Last week’s market action was a perfect example why. We had the beginning of a crash. I responded, and immediately reversed. We know why it reversed. All that cash that the Fed and Treasury poured into the market last week worked its magic. I assuredly do not know what caused it to start on a crash path however. That history is yet to be written.
Meanwhile, I will try to cut through noise and focus on the message of the technical indicators. We had a confusing little detour last week. I need to stay focused on the direction, even if a solar flare knocks out the GPS from time to time.
Cycles now appear to be opposed, with no coherent structure to support a breakout. The 10-12 month and 6 month cycles appear to be topping out. The 13 week cycle is still in a flat down phase. The short term cycles have probably bottomed.
Cycle projections for the 10-12 month cycle now point to xxxx (subscribers only), suggesting xxxx. There are no projections for shorter cycles.
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Cycle time projections point to a final top to occur in xxxx (subscribers only).
The third rail chart did not break its intermediate uptrend in the selloff. Resistance is at xxxx (subscribers only) subscribers on Monday, rising to xxxx (subscribers only) on Friday. If broken, the initial target zone would be xxxx (subscribers only).
On the weekly chart, the market recovered to close above a long term trendline now at xxxx. The uptrend remains intact.
On the monthly chart, May began with trend support at xxxx, and resistance at roughly xxxx (subscribers). The long term cycle momentum indicator is xxxx (subscribers).
Cycle screening measures weakened. The short term pattern suggests more upside. The intermediate term outlook is xxxx (subscribers).
The chart pick list had an average gain of 2.1% with an average holding period of 8 calendar days last week.
For the week as a whole, there were 224 buy signals and 125 sells, a spread of +99. That compares with 168 buys and 96 sells, a spread of +72, the week before. It was as if the vicious mid-week selloff never happened. But it happened to the chart pick list. 10 picks were stopped out, including both directions I added 8 buys to the list this week, bringing it to 14 longs, no shorts. That report is published here. (subscribers)
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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.
2/16/21 Every week I run technical stock screens covering all NYSE and NASD stocks trading above $6 and averaging more than 1 million shares a day. This typically results in between 15 and 50 charts to review visually. I’m looking for low risk, high reward price structures, which I’m not smart enough to program into the screening process. But it’s ok. I like to look at charts. 😊
Technical Trader subscribers click here to download the complete report.
I was worried that the list was going to have a very bad week, but in the end, it wasn’t even a flesh wound. In fact, it was just a scratch. We definitely took some hits as the extreme volatility caused stops to get triggered in both directions. List performance slipped to an average gain of +2.1%, down from +2.6% the week before, on an average holding period of 8 days, down from 9 days the week before. This assumes cash trades, no margin, no options.
10 picks hit stop triggers, leaving 4 on the list. All are longs, and all look well positioned for additional gains. I have adjusted stops on all of them.
Mea culpa. I did not see this coming. There were signs. I dismissed them. I was in a hypnotic trance, because there wasn’t much different in the TA than we’ve had before during this era of endless central bank money pumping, tilting the market playing fields. You are getting bullish. Very bullish. Bullish, bullish, bullish.
We’ve had a dozen years where negative divergences between technical indicators and the market averages meant nothing. Over the past two days, the market snapped its fingers. This time, they divergences meant something. But I had stopped believing a long time ago. To me, those negative divergences had become the Boy Who Cried Wolf.
That’s all I say about what I missed. As Satchel Paige said, “Don’t look back. Something might be gainin’ on you.” There is a time for post mortems. This is not one of them. This is the time to “read and react.” (Lombardi)
So let’s read, see what we can, and react. Technical Trader subscribers click here to download the report.
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Initial cycle projection on the SPX point to a low around XXXX (subscribers see full report). If that doesn’t hold, there are several trend support areas below that, which could be likely targets for a V bottom bounce. XXXX and XXXX are potential support areas, but they look minor. The big one would be XXXX.
As an aside from my liquidity research, massive amounts of liquidity are coming into the market right now. It started on Tuesday with a big Treasury bill paydown. Another one will hit today. And they’ll do it again next Tuesday. Today also begins Fed MBS settlement week, where it settles all the MBS it bought under forward purchase contracts 30-60 days ago. That’s $122 billion coming into dealer accounts from the Fed, and around $50 billion a week into dealer and other major investor accounts from the US Treasury.
So we have the tinder for a V bottom between XXXX and XXXX (subscribers see full report). But from where? And is this damage fatal to the long term uptrend? Those are the questions.
In the interest of getting to the point and getting this report out to you, below is a brief chart review (subscribers see full report) with brief comments.
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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.
Gold broke out of a nice base last week. I’m holding on to our mining picks, except for one that I dropped.
The Treasury Borrowing Advisory Committee (TBAC) is a gang of Primary Dealers and other big investment firms that tells the US Treasury once each quarter how much paper it will need to issue, and when. It provides an estimate of issuance by date and type for the current quarter and the next one. It does so every February, May, August, and November, near the beginning of the month.
The TBAC just issued its reports for the current quarter last week. The report confirms what we expect, a massive supply increase coming. We know exactly when it’s coming, and have a pretty good idea of when it should start to cause problems for the stock and bond markets. With that knowledge, we can now prepare for action to take advantage.
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Lee Adler