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How to Tell When This Inconclusive Market Turns Dangerous

Lee Adler

Technical Trader subscribers click here to download the complete report.

The timing of a likely 10-12 month cycle top is uncertain. The 6 month cycle, however, has begun to show signs of topping out. This report shows you what to look for.

The shorter cycle setup suggests that nothing significant will happen this week, but at the same time, that anything could happen. We wait for a tipping point that signals the next big move, day to day. But liquidity is trending bearish. 

On the cycle chart, all channels are still rising. The SPX would need to end the week below xxxx (subscriber version) to signal a potential change of direction in the longer term cycles of 10-12 months or more.   

On the Third Rail Chart the SPX is churning in two crossing channels. One is a short term channel with a slight downslope. Support descends from xxxx to xxxx (subscriber version) this week. Uptrending support below that rises from xxxx to xxxx . All would need to be broken to start anything significant on the downside. If the market starts off to the upside there are wide open spaces to the first trend resistance line at xxxx.

On the weekly chart the uptrend is tenuous but intact, despite the negative divergence in 3-4 year cycle momentum. SPX would need to end a week conclusively below xxxx to xxxx (subscriber version) to signal that this might be the start of a bigger top.

The monthly chart now shows the conditions suggesting the formation of a 7 year cycle top. If the S&P ends December below xxxx (subscriber version), the uptrend would be broken, and the target would then be the trendline now at 4000. Conversely, if the xxxx area remains intact, the way would be clear for a move to xxxx-xxxx in early 2022.

Cycle screening measures are inconclusive after dropping last week. Up days early this week would tend to xxxx xxxx xxx xxxx (subscriber version) intermediate term outlook. But weakness would suggest at least xxxx, or even something much bigger. Here again, we await signs of a tipping point. This report shows you the trigger levels.

Technical Trader subscribers click here to download the complete report.

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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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Get Ready for a Slow Moving, but Perfect Storm

Lee Adler

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The conditions we were looking for last month have happened.

11/21/21 Whether there’s a default or not, the debt ceiling will be lifted, probably sooner rather than later. When it is, a tsunami of Treasuries will flood the market, mostly in T-bills. But there could also be a huge slug of makeup supply at the long end. That would send bond prices into the dumpster, and T-bill rates and bond yields flying.

How much chaos would the Fed bear before issuing another huge emergency round of QE? That’s the question, ultimately. But in the interim, the event that everyone would see as a positive, raising the debt limit, could be the quintessential “sell the news” trigger leading to a broad based crash in all asset classes.

This is what we need to be on the lookout for as this saga progresses. Therefore, I still don’t want to xxxxx xxxxxx xxx xxxxxxx xxx xxxx (subscriber version). From the liquidity perspective, I hate the intermediate term outlook for xxxx.

But I’m still comfortable following the trend on stocks, remaining long until the market tells us otherwise, especially if that happens around the lifting of the debt limit.

So that’s where we are. Will it? This report has the answer.

The debt ceiling was lifted yesterday, December 16, and stocks have been getting pounded for the last two days. This could be the moment we’ve all been waiting for, in terms of market action in stocks. I’ll address that in more detail in the Technical Trader reports.

Right now in the third week of the month we’re in peak QE week, as the Fed settles its MBS purchases this week. It’s the most bullish QE vs. supply imbalance we’re ever going to have. This is the end my friends. I can’t believe, but we’re on the Eve of Destruction.

That’s because the Treasury will now issue a massive amount of new supply in a very short period of time. It has a goal that calls for raising $600 billion to restore its cash account to the desired level. Plus it must raise additional funds – who knows how much – to repay other internal government accounts it raided to stay below the debt ceiling.

It means that there will be a lot of supply, A LOT, over the next couple of months.

What’s worse, the Fed is cutting its QE purchases at the same time. Talk about a Perfect Storm. Fed QE has funded more than 100% of the Treasury market in recent months. The norm since the Fed began QE in 2009 has been 85-90%. When it cuts QE to zero in March, it will still have a small amount of MBS replacement purchases, but that won’t even be a rounding error in terms of the amount of debt the market will need to fund.

The canny Fed and Treasury have, however, created a $1.6 trillion slush fund to help absorb those Treasuries. It’s the Fed’s RRP program, where money market funds, banks, and dealers can deposit the cash they got back from the T-bill paydowns that they got from the US Treasury since February. This report has the charts to show exactly how that worked. The correlation is perfect.

The Treasury paid off that paper systematically so that it would stay under the debt ceiling. That money is now just sitting there in overnight, same as cash, RRPs, waiting to re-absorb all the new Treasury supply that’s on the way.

Or is it? Nobody is forcing the money managers holding those RRP funds to rebuy Treasuries. They may like holding riskless Fed RRPs even more than they like holding Treasuries. So maybe not all of that $1.6 trillion will be available to absorb new supply. That’s where the problems start. When the RRP holders decide they’ve had enough. The slush fund won’t last forever. We’re tracking it closely and should know exactly when it is signaling a big problem.

Of course the Fed could force the issue, by ending the RRP program, but there’s still the point where that fund hits zero, and simply isn’t there to absorb new supply. At that point the market would face an intractable problem. Lots of supply and no ready cash to absorb it. We know exactly what would probably happen then, because we know the positioning of the Primary Dealers at all times.

Rates and yields would xxxxxxx xxx xxxx (subscriber version). Bonds would xx xxxxxxx (subscriber version). Dealers and banks would xxxxxxx xxx xxxx. Massive Fed intervention xxxxxxx xxx xxxxx  xxxxxx.

We should soon be able to estimate the timing of that.

For now, I really don’t foresee a way out of this. Only the timing is in question. I’m staying away from the xxxxxxx xxx xxxx (subscriber version), and looking for xxxxxxx xx xxxxxxx xxx xxxxxx xxxx.

Get the rest of the story and ideas on how to handle what’s to come  spelled out and illustrated in the subscriber version.

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Gold Hangs By a Thread on the Eve of Destruction

Lee Adler

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Weak short term cycle up phases are in danger of early breakdowns  The 13 week cycle is due to remain in a down phase for xxxx (in subscriber version), with a projection of xxxx (in subscriber version). A breakdown below xxxx  would be a bearish sign as it would complete a head and shoulders top pattern with a measured move target of around 1650.

Gold begins December below a couple of key trendlines on the monthly chart. It would need to end the month comfortably above xxxx to reduce the risk of another slide that could carry into the xxxxx. Conversely, if it ends the month above xxxx, that would be a bullish sign.

As for the mining stocks, The short cycle up phase is in danger of an early breakdown, as the 13 week cycle down phase targets xxxx – xxx (in subscriber version).

There are 13 buys and 3 sells from the swing trade screens of 52 gold mining stocks from Tuesday’s action. The rest had no signal. I looked at the charts, and, once again, these buy signals did not impress me as anything more than a dead cat bounce that would probably fizzle out. I decided to wait for better setups before re-entering. This may require some patience.

The last remaining pick from the most recent group hit its stop over the past week and was closed as of the stop price with a loss of 4.4%. Previous picks closed out over the past month had an average gain of 13.4% on an average holding period of  48 calendar days.

See table and charts (subscriber version).

Subscribers, click here to download the report.

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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Swing Trade Screens – More Buys Than Sells Again This Week

Lee Adler

Technical Trader subscribers click here to download the complete report.

This Friday’s screens had 15 buys and 9 sells. That compares with the previous Friday’s 50 buys and 16 sells, a solid precursor to last week’s rally.

1439 stocks met the initial screening criteria in the current screen. Only 1.7% of them rendered signals on Friday, which is far below the normal 3-5%. Only 1% of the stocks that met the minimum criteria had buy signals. That could mean that the move is already exhausted.

I’m making no new additions to the list this week, either long or short. Last week, I added just one long. Everything else on the list was short, leading to a bad week.  Including picks that were stopped out, and those still open, the list ended the week with an average gain of just 3.1% on a 15 calendar day average holding period. That compared with the previous week’s average gain of +8.1% with an average holding period of 18 days.

The list will now have 8 open picks, of which just one is a long, and the rest are shorts. I’ve added stops to all of the shorts, in case they don’t roll over again.

The table and charts of open picks are below (subscriber version only).

Table (subscriber version only)

Charts (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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Here’s Why Not to be Dumbfounded in Disbelief

Lee Adler

Technical Trader subscribers click here to download the complete report.

The 10-12 month cycle now appears to be in trending mode. The timing of a likely top is uncertain. The 6 month cycle has returned to its up phase path. The up phases in those two cycles that appeared to abort the week before have reasserted themselves. The 6 month cycle projection is now xxxx (subscriber version). There’s a 4 week cycle projection of xxxx (subscriber version).

On the Third Rail Chart the SPX is now in a meltup channel that is targeting xxxx (subscriber version). If it stops at xxxx instead, it could be a top, but I wouldn’t bet on that unless and until it dropped back below xxxx.

On the weekly chart, last week’s rebound repaired the technical damage of the week before. The uptrend is intact, despite the negative divergence in 3-4 year cycle momentum. SPX would need to end a week conclusively below xxxx (subscriber version) to signal that this might be the start of a bigger top.

The monthly chart now shows the conditions suggesting the formation of a 7 year cycle top. If the S&P ends December below xxxx (subscriber version), the uptrend would be broken, and the target would then be the trendline now at 4000. Conversely, if the xxxx area remains intact, the way would be clear for a move to xxxxxxx xxxxx in early 2022.

Cycle screening measures screamed higher in a pattern similar to October-November 2020. That led to a breakout and long upleg. It doesn’t guarantee the same outcome here, but we need to be cognizant, and prepared for the possibility. We don’t want to be dumbfounded in disbelief, and get caught flatfooted. I’ll keep you updated on conditions and signals in these reports.

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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Prepare for Market Doom, the Moment of Truth Is Here –

Lee Adler

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The moment of truth has arrived. The debt ceiling deal is done. After a final paroxysm of T-bill paydowns totaling $209 billion this week, all that market support from the US Treasury will go in reverse. The Treasury market will get slammed with a tidal wave of supply to start to repay all the internal accounts that the Federal Government raided to stay under the debt ceiling.

Under the circumstances, I thought this would be a good time to look at Primary Dealer positions and financing, along with the usual QE and supply data in a report to follow. In any case, there are no surprises.

This situation is unfolding on the timetable we expected. The wildcard is the Fed’s RRP slush fund, which has been hovering around $1.5 trillion. The uncertainty lies in the fact that we don’t know how long that will last. What we do know is that the drawdowns will start very soon, perhaps this week.

The Primary Dealer data might give us some idea of how long the RRP slush fund will last before the bond market really starts to crack. It’s not an open and shut case that the holders of the RRPs will use all $1.5 trillion of it. I continue to think that some will stay put, content to leave their cash in these overnight RRPs with the Fed instead of moving back into T-bills. The sooner the amount of RRPs outstanding levels off, and the higher the level remaining outstanding, the more bearish it will be for Treasuries and stocks.

But first, since we last looked at the Primary Dealer data in late October, the dealers have dumped a ton of long Treasury inventory. They’re still highly leveraged, but their net long position is the lowest it has been in 4 years. They’re getting prepared for the worst. Whether that will help them weather the storm is an open question that we will monitor closely.

At the very least, we need to be prepared for xxx xxxx xxxxx xxxx (subscriber version) in stocks, and what should turn into xxx xxxx xxxxx xxxx in Treasuries and other fixed income securities. Here’s what I would do about that.

Subscribers, click here to download the report.`

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KNOW WHAT’S HAPPENING NOW, before the Street does, read Lee Adler’s Liquidity Trader risk free for 90 days!

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Reason for Hopeful Pessimism on Gold

Lee Adler

It’s not great, but there are benchmarks that would signal that this pattern may be turning bullish.

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Short term cycles have turned up. The 4 week cycle projection is a nice target, but there are no guarantees here. It would certainly be helpful to the bigger picture if it is reached. The 13 week cycle still has some vulnerability for 3-6 more weeks. A breakdown below xxxx (in subscriber version) would be a bearish sign as it would complete a head and shoulders top pattern with a measured move target of around xxxx.

Gold begins December below a couple of key trendlines on the monthly chart. It would need to end the month comfortably above xxxx to reduce the risk of another slide that could carry into the xxxxx. Conversely, if it ends the month above xxxx, that would be a bullish sign.

As for the mining stocks, the shortest cycles rebounded due to the rally of the past 2 days, but that wasn’t enough to keep the 6 month cycles from falling to the sell side. 13 week cycles remained at more than 90% on the sell side. With 6 month cycles now negative and not yet extreme, any bounce xxxx xxx xxxxx xx xxxxxxxx (in subscriber version).

There are 34 buys and 2 sells from the swing trade screens of 52 gold mining stocks from Tuesday’s action. I looked at the charts, and these buy signals did not impress me as anything more than a dead cat bounce that would probably fizzle out. I decided to wait for better setups before re-entering after closing all but one of the picks that had been on the list in previous weeks.

The 7 picks closed out from November 2 through December 2 had an average gain of 9.9% with an average holding period of 43 calendar days. Not bad considering how uneven the performance of the sector has been.

1 pick hit its stop over the past week and was closed as of the stop price with a gain of 23.4%. That left just one pick on the list, hanging on with a loss of 1.2%. I’ve tightened the stop on that one.

See table 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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Gold Trader Publication Schedule Note

Lee Adler

This report will be posted on Wednesday morning instead of Tuesday this week. I will be on the road all day. I usually travel by train, where I can get the report done. But with the pandemic raging here in Poland, on this trip I have driven.

Thanks for your patience. See you Wednesday!

Lee

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What I Did Won’t Surprise You, as Buy Signals Surged in Swing Trade Screens

Lee Adler

Technical Trader subscribers click here to download the complete report.

This Friday’s screens had 50 buys and 16 sells. This was a big reversal from the previous Friday’s 17 bullish and 145 bearish signals.  That was a big number that indicated downside thrust. The week before that was also lopsided on the sell side, a precursor to last week’s broad selloff.

The current number now suggests a reaction rally.

1380 stocks met the initial screening criteria in the current screen. 4.7% of them rendered signals on Friday, which is normal. 3.6% of the stocks that met the minimum criteria had buy signals. This isn’t enough to indicate a big broad based move, but there are 4 days to go this week where anything is possible.

Last week, I added 4 shorts to the list. I set one of the existing buys to be closed out last Monday. Two others hit stop prices and were closed out from the tracking list at the stop prices. These theoretical trades are shown on the table below (subscriber version only).

I was underwhelmed with the setups on the charts that rendered signals this week. I only found one buy and no shorts that I liked enough to put on the list, as shown on the table below (subscriber version only).

In total, this will bring the list to 12 open picks, of which all but the one new pick are shorts. I’ve added stops to 4 of those picks.

I continue to view stops, particularly trailing stops, mostly as a mechanism for closing out picks that I want to close out. I don’t like them for protection because they just as often get picked off on trades that turn into winners. So I’m willing to roll the dice on the rest this week. I’ll decide week to week whether to pull the plug, protect, or keep rolling.

As of Friday, the average gain of open picks and those closed last week was +8.1% with an average holding period of 18 days. This was a strong performance compared to recent weeks, especially so given the rotten market action. The list was on the right side of that. The previous week the list had an average gain of +2.2% with an average holding period of 20 days.

The table and charts of open picks are below (subscriber version only).

Table (subscriber version only)

Charts (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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Here’s Why Truncated 6 and 12 Month Cycles Are Scary

Lee Adler

Technical Trader subscribers click here to download the complete report.

We’ve seen this before – a market break that was out of synch with where significant intermediate tops should have been, time wise. The last time it happened was March of 2020. It doesn’t guarantee a similar outcome here, but there are keys to watch to tell us just how bad this turn will be. Is it another BTFD opportunity, or the beginning of a crash, or a terrible, multi-year bear market?

If you follow the monetary trends data on Liquidity Trader, you know that the current situation is more fraught with risk than any we have seen since the Yellen Fed Balance Sheet Normalization period of October 2017 to December 2019. In fact, the liquidity outlook is even more bearish now than then, so I take these technical signs of weakness in the market here very seriously, despite the fact that they appear to be out of synch with where the biggest swing cycles say the market should be.

Cycles – Both the 10-12 month and 6 month cycle up phases were truncated early. When such failures have happened in recent years, the up phases have usually reasserted themselves within a few weeks. But that wasn’t the case in March 2020. Because liquidity factors are about to turn extremely bearish I take this turn seriously. True, it may be a false alarm. But it seems more likely to be a warning shot across the bow, or something far worse.

The 13 week cycle down phase came on schedule, but it was sharper than it should have been with the 6 month and 10-12 month cycles both in up phases. The market would need to bounce hard this week, in an overdue 4 week cycle uptick, for this to turn into a benign consolidation. A weak uptick this week, or no uptick, followed by a break of trend support around xxxx (subscriber version) would suggest that something big to the downside was under way.

On the Third Rail Chart, the market needs to clear a downtrend line that runs from  xxxx to xxxxx (subscriber version) this week to signal a short term rally. Conversely, dropping below  xxxx  would suggest a move back to the October low around 4300.

On the weekly chart, 3-4 year cycle momentum has formed a sharp negative divergence at the price highs, which is now confirmed by a price trend break. This suggests a 3-4 year cycle top is finally in progress. Tops on this cycle normally take 10-12 months to develop with a series of rallies and declines, with multiple peaks ultimately failing to surpass a previous high. An instant crash such as in March 2020 is the exception.

Another sign of possible top formation is the renewed failure of the long term trend resistance breakout, and the break of an uptrend line dating to March 2020.

The monthly chart now shows the conditions suggesting the formation of a 7 year cycle top. If the S&P ends December below xxxx (subscriber version), the uptrend would be broken, and the target would then be the trendline now at  xxxx. Conversely, if that area remains intact, the way would be clear for a move to  xxxxxxx xxxxx in early 2022.

Cycle screening measures The aggregate indicator fell to its lowest level since October 2020, low enough to suggest that a significant short term bottom is imminent. Therefore the odds favor a bounce from here.

Six month cycle measures weakened. Six month cycle current status broke down from neutral. That’s bearish. A weak bounce from around these levels would suggest  x xxxx xxxxxxxx xxxxxxxxxx  xxxxx (subscriber version).

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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