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Play Ball! Stock Market Swings For the Fences in Season Opener

Friday’s rally appears to support that we’re in the early days of a 6 month cycle up phase. We have been expecting it in this time window.  Ditto for the 10-12 month cycle, which has been trending anyway. Those two cycles should now be in gear to the upside for a few months. This would normally cause shorter cycles to resync from that low, and also to have extended uplegs.

This weekend’s screens of some 9000 listed stocks generated a whopping 163 short term signals from key levels. An equally impressive 155 were on the buy side. Furthermore, three of the sell signals were on inverse ETFs. Therefore 158 signals were bullish. Only 5 were bearish. This suggests a big turn with lots of thrust. It’s consistent with a 6 month cycle upturn.

But I was underwhelmed when I viewed those charts. Most were ambiguous. This doesn’t give me enough to conclude that we’re going to have a sustained power move.

From my visual review, I chose 8 charts which appeared to have good potential for a decent sized swing move. All were buys. If this works out as it should, we’ll get 2 or 3 runners from this group while the rest have small gains or small losses.

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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. 

Going Going Gone- We Now Know When The Party Will End

On February 23, the US Treasury pumped $55 billion in cash into the accounts of Primary Dealers, banks, money market funds, and other institutions who had held the T-bills that were expiring that day. These redemptions began the US Treasury’s series of massive, twice weekly paydowns of the US government’s short term debt.

The purpose of the paydowns was twofold. First, the Treasury is required by the current budget law to whittle down its cash from a peak of $1.8 trillion last year, to $133 billion by August.  Treasury Minister Janet opted to start the process by paying down existing short term debt.

That accomplished the second goal, which was to force holders of the expiring paper to buy longer term debt. Despite their protestations that all is well, economic policy makers know that the crash in Treasury note and bond prices is causing a crisis in the Primary Dealer system.

Minister Janet works very closely with Lord Jaysus of the Fed, of course. They expected that the T-bill paydowns would help to reverse the decline in the prices of Treasury notes and bonds by forcing cash into the accounts of dealers and investors. It didn’t work. At least not to the extent that they needed. The full report is reserved for subscribers. 

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Non-subscribers, there’s more for you too! So read on!

Bank Deposits Chart and Data Correction

In the March 21 report on bank deposits I mistakenly posted an old chart from January. Here is the correct chart through March 10 on deposits and through March 17 on the Fed’s SOMA, along with an update on the impact of the correction on the analysis and conclusions.

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A Little Pullback with Big Implications

The upward path of prices got slammed at midweek, just as the S&P 500 had crossed the centerlines of a couple of channels. The index then fell to below the long-term channel from last year’s low. So this little pullback turns out to be very, very significant. It has led the SPX to a major inflection point.

So now we wait for a signal on what the market will do about it. I have added a few chart picks to take advantage, Most of them are on the sell side. It’s been a while since there have been more short picks than longs.

Technical Trader subscribers click here to download the report.

Not a subscriber? Follow Lee’s market analysis and outlook, with 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. 

This Trend of Bank Deposits Should Scare the Hell Out of You

First, I want to repeat something I wrote in January:

1/18/21 A while ago I made the huge call that the stock market would follow the bond market in crashing, because Primary Dealers were overloaded with long inventory and overleveraged in financing it. I set a line in the sand of 1% on the 10 year. Last month, they crossed that. Stocks are still going up.

My technical analysis, based on the Cyclical Analysis techniques that JM Hurst published in 1970, first forecast an ultimate price target of 3900 on the S&P 500 on July 26, 2020. Three months later that projection rose to 3900-4000, and just a few weeks ago, the latest revision pointed to 4300-4400.

I don’t think it will get there, but what I think does not matter. I will follow the trend indicators until a clear sign that the fever has broken. I acquiesce in the knowledge that there’s dark matter and energy in the financial universe that I can’t see and don’t understand.

The visible part of the financial universe that I can see and of which I have some grasp, tells me that the system is fragile, that it could crash, and that the risk of such a destabilization is as great now as it ever has been.  

Again, I wrote that, two months ago.  So now what?

The Day of Reckoning Is Upon Us

Stock buybacks have been widely reported as being responsible for much of the bull market. That is undoubtedly true. Buybacks reduce the supply of equities, and put cash back in the pockets of sellers. That cash burns a hole in their pockets, stimulating their demand for the reduced supply of equities that remains on the market.

Of course, that ignores the cause. Free money from the Fed promotes these corporate C-suite financial engineering scams. Executives get to issue ridiculous stock option grants to themselves, then they have their corporation do stock buybacks to push up the value of their options. They can then sell into the rallies that result. Nice work if you can get it.

I have warned for several years that such stock retirements are a two way street, that when prices get high, companies will reverse course and start issuing more stock. That is starting to happen.

Fed and US Treasury Are Ensuring that Macro Liquidity Stays Bullish

What else is new?

Tomorrow, the Fed talks. But Fed talk is cheap. The Fed wants you to think that talk – its talk – moves the markets, or keeps them stable. That’s just utter bull. You and I know that from simply tracking the data for as many years as we have. Bottom line, as always, is, money talks, and the Fed’s BS is just that.

All of the discussion and paralysis by analysis in the media is a sideshow. Mass confusion that consistently misses the point. It all boils down to one simple fact. When the Fed pumps money into the financial markets via the Primary Dealers, stock prices follow the money. Everything else that happens in the economy is tangential and irrelevant to trading.

I started tracking and charting the data that goes into this in 2002, courtesy of the NY Fed print shop. Here’s the chart that started it all. It was made famous in 2012 when Rick Santelli featured it in one of his rants on CNBC.

Many, many people have copied this in the years since I began publishing it about 17 years ago. But they all fail one basic test. Here’s what it is and why it matters. It matters so much that it could mean that the end of the financial system as we know it is at hand.

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When The Fed Doesn’t Want Us To Know How Bad It Is

This is what it does. It stops publishing good data, and either substitutes no data, or shitty data.

I rely on the Fed’s weekly data in my research. I want to know what’s going on as close to real time as possible. It’s simple. As traders, we need current data, or as close to current as possible.

The Fed’s new format H6 money supply release is utterly useless. They stopped weekly publication.  As of February 23, the report now includes only monthly averages, and is released only on the 4th Tuesday of the month for the preceding month. So current data, as the average for January, is effectively Jan 15.  This is virtually useless.

When the Fed doesn’t want you to know what’s going on in near real time, this is what it does.

Fortunately, there’s a perfectly good workaround.