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The Fed is Tightening Into a Sheet Storm

Ending QE has created the perfect storm in the markets. Our warnings about the bond market going to hell and leading the stock market have been coming to fruition.

The Law of Supply and Demand is still the law of market land. The US Treasury is still issuing supply, but the Fed is no longer providing demand nor stimulating it. The Fed has gone from the biggest buyer in the marketplace to being absent by design, thanks to the raging consumer price inflation that the Fed itself created.

Now the Fed is likely to announce that not only will it not be the biggest buyer in the market, it will force the US Treasury to issue even more supply. By demanding that the Treasury repay a portion of the money that the Fed lent it via the Fed’s purchases of Treasury securities, it will force the Treasury to sell more debt to the public to raise the cash to repay the Fed. That cash will then be extinguished. It will leave the banking system and be gone. Poof. Just like that. That will further weaken demand.

But the Treasury will keep needing more cash. It will have to come from somewhere, and that somewhere will be the liquidation of other Treasury securities, stocks, and other assets of all kinds. Commercial real estate is being decimated. You think home prices are safe? Think again. What about commodities? Not yet, but that’s coming. Once the downward spiral starts, nothing will be immune.

Here’s how it will play out, along with what you can do about it to protect yourself and even profit.

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Swing Trade Screens Yield A Boatload of Short Sales

Last week’s daily screens were surprisingly neutral for the week as a whole. The final score for the week was 114 Buys to 118 Sells. However, many of those buys were inverse funds, so that there was still a modest tilt to the sell side. And on Friday alone, there were just 12 buys and 44 sells, a negative sign for this 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 rescreened that output, for additional signals in the progression on Thursday and Friday. The final lists this week resulted in 32 chart pick candidates on the buy side and 131 on the sell side. However, of the 32 on the sell side, 15 were inverse funds. That means that nearly 90% of the charts that made the final cut were on the short sale side.

I reviewed the charts from the final output visually. From that review, I chose no buys and 13 shorts to add to the list, shown on the table below. While I don’t track this number, the 13 picks on the short sale side were certainly a record.

Last week we started with 13 picks on the list. 5 were buys, 8 were short sales. Four picks hit their trailing stops and were closed as of the stop price. I closed another as of the opening New York price last Monday. Including those and the picks still open at the end of the week gave us average gains of 2.4% with an average holding period of 10 days.

April was a challenging month. Picks closed out in April had an average gain of 0.9% with an average holding period of 10 calendar days. Yep, it was choppy. March was the first full month where I used multiple days of screening. Picks closed in March had an average gain of 4% with an average holding period of 23 days.

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

This week we will start with 21 picks on the list including the 13 new ones. All 21 picks are short sales. That’s a first. If there’s a V-shaped reversal, it’s gonna leave a mark.

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 in the report. Charts of new and open picks are below that.

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Market Outlook Going from Bad to Worse, Fast

Downtrend channels are steepening as liquidity dries up, and wave amplitude increases. It is violent, and could be increasingly so to the xxxxxxxxx xxxx xxxx xxxxx (non subscribers click here to access).

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Cycles – The 6 month cycle up phase was truncated early. An initial downside projection points to xx-xxxxx (non subscribers click here to access). Both the 6 month and 10-12 month cycle lows are ideally due from xxxx xxxx xxxx xxxx (non subscribers click here to access).

The 13 week cycle low is ideally due xxxx xx to xxxx xx (non subscribers click here to access), with a new projection of xxxx. The 6-8 week cycle low is due xxxx, with the projection range reaching xxxx

The premature failure of the 6 month and 10-12 month cycle up phases have set up a test of a support convergence around xxxx (non subscribers click here to access). Breaking that would suggest a crash that could be similar to that of xxxxxxxxxx, or even worse.

Third Rail Chart – To break the crash they’ll now need to at least break a trendline running from xxxx to xxxx this week (non subscribers click here to access). On the other hand, if they break the February low of 4214 this could xxxx xxxx xxxx, xxxx. Minor support is indicated around xxxx and xxxx. A more likely target would be around xxxx on May xx. But it could just as easily get there by xxxx xxx xxxxxx if the market breaks down on Monday.

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 – All measures are weak and support a xxxxxxxx xxxxxxx xxxxx term outlook.

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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 Looks Sick

The expectation of one last high before summer has been pre-empted. Longer term indicators look hurt too.

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Swing Trade Chart Pick Screens Flip Flop

No surprise, last week’s daily screens tilted to the sell side. The final score for the week was 148 Buys to 187 Sells. That’s still a lot of buys, but that was Monday to Wednesday. That got reversed and then some on Thursday and Friday.

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On Friday alone, there were just 19 buys and 144 sells That bodes ill for this week.

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 for the holiday shortened week. I then rescreened that output, for additional signals in the progression on Wednesday and Thursday. The final lists this week resulted in 67 chart pick candidates on the buy side and just 8 on the sell side. Slim pickings for shorts this week.

I reviewed the charts from the final output visually. From that review, I chose no buys and 7 shorts to add to the list, shown on the table below.

Last week we started with 8 picks on the list. 6 were buys, 2 were short sales. Two picks hit their trailing stops and were closed as of the stop price. I will close another as of the opening New York price this morning. Including those and the picks still open at the end of the week gave us average gains of 2.2% with an average holding period of 12 days.

Picks closed out in March had an average gain of 4% with an average holding period of 20 calendar days. Picks closed out in April so far have had an average gain of 0.8% with an average holding period of 11 days. Yep, it has been choppy.

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

This week we will start with 12 picks on the list including the 7 new ones. 4 are buys. 8 are shorts. 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 in the report (non-subscribers click here for access). Charts of new and open picks are below that.

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Ugly Whipsaw Revives Crash Potential in Stocks

The market did an abrupt about-face after breaking out of a crash channel to begin the week. That about-face put the market right back in that channel.

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Cycles – Shorter cycles are still in gear to the downside. A 6-8 week cycle low is still due by xxxx xx (non subscribers click here to access) within a projection range dropping to xxxx-xxxx. The incipient potential up phase in the 10-12 month cycle seems to have aborted. The 6 month cycle up phase is also on the verge of a possible early failure. A breakdown in price this week would imply xxxxxxxxx xxxxxxxxxx xxxxxxxxx.

Third Rail Chart – To break out of the crash channel they’ll need to clear 3 resistance levels. This week, they are around xxxx xxxx and xxxx (non subscribers click here to access). To break the intermediate downtrend, they would need to clear xxxx. They would merely need to break xxxx by the end of this week to keep the crash channel intact. If it were to happen sooner, that would signal acceleration of the downtrend.

Long Term Weekly- The 3-4 year cycle is in a top phase, but it still has an unmet projection of xxxx that can’t be ruled out until the top breaks down. That would require a weekly close below xxxx (non subscribers click here to access).

A 7 year cycle top is due this year in a projection range of xxxx-xxxx(non subscribers click here to access).

Monthly Chart – Trend support is around xxxx in April. If that breaks, the next target would be the trendline around xxxx-xxxx (non subscribers click here to access).

Cycle Screening Measures – The cycle screening aggregate whipsawed violently last week. Notably, it made both a xxxx high and a xxxx low within the space of two days. The pattern is now xxxxxx for both the short term and intermediate term (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. 

Tons of Cash, Not In Use, Signals this Huge Change in the Market

The Treasury Borrowing Advisory Committee (TBAC) told us in early February that it estimated that the US Treasury would pay down $358 billion in T-bills in the second quarter. That’s a lot of cash to stuff into the accounts of money market funds, banks, Primary Dealers, and other investors who use T-bills as a near-cash holding.

There’s nothing unusual about that. It’s an annual occurrence. The Treasury gets a tax windfall in March and April and uses the money to temporarily pay down outstanding T-bills. Those paydowns stuff cash into the accounts of those holding the expiring bills that are being redeemed. Then those former holders of the bills must find a place to reinvest that cash.

There are fewer T-bills in the market for them to roll into. When the Treasury pays them off, they’re gone. Poof. The Treasury will only start issuing new T-bill supply in a couple months when it needs to start borrowing short term again to fund government spending. Meanwhile, there’s a surfeit of cash in the accounts of money funds, banks, dealers, and investors.

Some recipients of the paydowns buy bills in the secondary market. That pushes the rate down. Some roll out a bit on the yield curve toward longer maturities. That normally pushes short term coupon paper, such as the two year note, prices upward, and yields lower. That buying ripples out through all maturities along the curve.

And a few at the margin decide to park the cash in stocks, which pushes stock prices up.

As a result of that process, we invariably saw rallies around the time of annual tax collections. Likewise, in the third week of every month, the Fed added to the cash tsunami with its regular settlement of its previous forward MBS purchases under QE. Because there’s a built in lag in that process, even though outright QE has ended, there was still a big Fed MBS settlement last week totaling $98 billion.

All told, there has been a helluva lot of cash pumped into the market in the past couple of weeks. But the markets have not rallied as I have expected them too.

Apparently, I missed something important. It’s obvious, but I underweighted the fact in my thinking. Here’s what it is, why it’s a huge deal, and what it tells us about how to trade and invest to protect, and even grow, our capital.

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Sell Gold in May and Go Away?

I don’t expect much upside in the near term but the outlook should brighten later this year.

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Four Year Cycle indicators remain bearish. A cycle low is ideally due xxxx-xxxx (non-subscribers, click here for instant access), but normal variance would allow for an upturn at xxxxx xxxx. However, there’s still risk of a final decline until momentum gives a clear buy signal. A down week this week would break the 6 month cycle moving average with bearish implications for the next xxx-xxx months. Conversely, a weekly close above xxxx would be bullish, particularly if 3-4 year cycle momentum breaks its downtrend. Such a breakout would signal a likely move to xxxx as the next target, with a conventional measured move target of xxxx-xxxx (non-subscribers, click here for instant access).

Swing Trade Screen Picks

Over the week ended April 18, 30 charts of the 52 mining stocks that I track had at least one buy signal. 21 had at least one sell signal. This remains typical of a consolidation phase with no sign of a strong push in either direction.

The signals anticipate swings of 3-5 weeks. But when a market or sector is rangebound, there are lots of whipsaw signals. This is why it’s necessary to look at the charts for the overall pattern.

I rescreened the stocks that had at least one buy signal over the prior 5 day period, for repeat buy signals on over the past two trading days. There were only 5. There were 3 repeat sell signals. Again, these are small numbers reflecting a sector going nowhere.

I looked at the charts of the 5 repeat buy signals. Again I was not enamored with what I saw. Too many charts looked like intermediate term tops, just like the week before. At best it looks like more ping pong ahead. I feel like giving up on the sector. Perhaps that’s a bullish sign. But until the charts give me something more concrete to go on, this week at least, I’m sitting tight and doing nada.

One existing pick hit its stop last week and I’m dropping another as of the opening price this morning. That will leave just one pick on the list this week. One pick hit its trailing stop last week. As of yesterday, including both closeouts and the remaining open pick, last week’s 3 picks had an average gain was 3.4% on an average holding period of 9 calendar days. 8 picks were closed out in March. The average gain was 10.8% on an average holding period of 27 days. Two picks have been closed out in April so far.

Since November, after tweaking the screening methodology to use multiple days in making selections, 25 picks have been added and closed out. The average gain was 6.8% on an average holding period of 29 calendar days. Averages assume 100% cash, no margin, no options. The use of margin or options will magnify both gains and losses. See disclaimer below the charts.

Table and charts below (non-subscribers, click here for instant access).

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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. Past performance does not imply future results. 

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Swing Trade Chart Pick Screens Flip to Buy Side

Last week’s daily screens tilted to the buy side, going against weakness in the market averages. The final score for the week was 97 Buys to 37 Sells. That reversed 3 straight weeks with a plurality of sells.  Prior to this 3 week run, buy signals had held the edge for 3 weeks.  Cycles!

However, on Thursday April 14 alone, there were just 6 buys and 33 sells, portending a soft start for this 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 for the holiday shortened week. I then rescreened that output, for additional signals in the progression on Wednesday and Thursday. The final lists this week resulted in 67 chart pick candidates on the buy side and just 8 on the sell side. Slim pickings for shorts this week.

I reviewed the charts from the final output visually. From that review, I chose 4 buys and no shorts to add to the list, shown on the table below (Non subscribers click here for access).

Last week we started with 9 picks on the list. 3 were buys, 6 were short sales. 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 11 days.

Picks closed out in March had an average gain of 4% with an average holding period of 20 calendar days. Picks closed out in April so far have had an average gain of 1.8% with an average holding period of 11 days.

It would be nice if we could annualize these numbers, but reality doesn’t work that way.

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

This week we will start with 7 picks on the list including the 4 new ones. 6 are buys. 2 are shorts.

The new picks, along with picks that remain open, and those closed out last week, are shown on the table below (non-subscribers click here for access). Charts of new and open picks are below that.

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The Dow, Macro Liquidity, and the Fate of Russian Generals

I began to warn in December 2021 that the process of the CLI flattening was beginning, and that that would lead to bad things happening. Subsequently, the line maintained a steady rise until March 2022 when the Fed ended QE. It’s hard to see on the scale of this chart( I began to warn in December 2021 that the process of the CLI flattening was beginning, and that that would lead to bad things happening.

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So far, those bad things that I predicted have barely scratched the surface of the potential of what’s to come as this line stays flat. The Fed has warned us that it will start shrinking its balance sheet after the May FOMC meeting. That will pull money out of the banking system. That’s when we should start to see really “bad things.”

Meanwhile, the stock market is has reached the low side of its normal band of motion from the CLI. If history is any guide, the stock market will remain vulnerable to further severe declines until a week or two after the line representing the S&P 500 penetrates the bottom of the normal range of motion from the liquidity line.

In 2011, touching the bottom of the band was a bullish signal. But I don’t think that will work today. Back then the Fed was loose and committed to stay loose. Now, it’s in just the opposite posture. They won’t be sending the cavalry to help the stock market any time soon.

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