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Despite the Rally Primary Dealers Are Still At Risk

This is a repost of the previous post, with corrected headline and link. I apologize for the redundancy. 

Primary dealers have offset their losses of last August through February in the recent rally, and they have reduced their net long exposure somewhat since their highest levels of a year ago.

But that doesn’t mean that they’re not still at significant risk if the bond market begins to selloff. They are still positioned for stable or higher prices, and stable or lower yields. If yields rise and Treasury prices fall, as I have concluded they will, then it won’t be long before the dealers are in trouble again. And if they’re in trouble, all asset markets will be in trouble.

This report looks at the particulars of their positions, along with a quick update on the 10 year Treasury yield. That includes a few keys that should signal when the next decline in bond prices is starting.

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FREE REPORT – Proof of How QE Works – Fed to Primary Dealers, to Markets, To Money

Gold’s Rebound Increases the Risk

It’s too soon to tell if this is repair or consolidation, but the risks are high, and the downside targets remain in place for now. We still have one mining pick in hand. It isn’t barking but isn’t rolling over. It’s the best chart of a bad class.

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Chart Picks – 25 Buy Signals and 41 Sell Signals Give Us These Picks

Open picks ended the week with an average gain of 1.9% on an average holding period of 12 calendar days.

This Friday’s screens had a bearish tilt, with 25 buy signals and 41 sell signals. This indicates slight drag, and even less thrust for the market as a whole. But these short term sell signals don’t mean much when most stocks are trending.

Get the newest picks and review their charts and those of existing picks in today’s report. Technical Trader subscribers click here to download the complete report. 

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So You Think the Fed Can Taper?

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Treasuries have sold off on the strong, surprise jobs report last week.

At the same time, there’s been an equally important, but less well known surprise. The Treasury has maintained an increased pace of T-bill paydowns in the first third of August, despite the re-imposed debt ceiling.

That’s a short term bullish factor for bonds as it keeps pumping cash into the dealer and other institutional accounts that had been the holders of the T-bills being redeemed.

But it also means that the Treasury will spend its cash faster than I had initially imagined. That means that the bullish influence will end sooner than in my last guess.

I use the word “guess” deliberately. It’s difficult to estimate of what brilliant, but crazy, policymakers will make up when the heat is on.

The good news is that we now have evidence of a pattern. That pattern shows a fast spenddown. At this rate of spending, the Treasury will run out of cash in xxx xxxx (in subscriber report). As I recall from the past 7 debt ceiling debacles, there’s also a legal mandate that the government must make a large military pension fund contribution at the end of the fiscal year which will affect the drop dead date.

Maybe they can delay that for xxxx xxx xxxx (subscriber report) depending on the strength of mid September quarterly income tax collections. But at some point in xxxxxxx, the pressure to raise the debt ceiling will force a deal.

The jobs data was a surprise. As usual, the BLS first release is BS. The July nonfarm payrolls report grossly overstates the increase in jobs. The tax data is actual and, as I pointed out in the monthly Federal revenues report posted last week, withholding tax collections show that the payroll gains were certainly less robust than the BLS said they were.

As you may recall, back in the spring, there were a couple of months were the nonfarm payrolls gains were severely underreported relative to what the withholding tax collections were showing. I wrote then that the BLS data would catch up to the reality within a few months. I believe that the July report was the “catchup” month.

In our report on July federal withholding collections, we saw a dip in the second half of the month that suggested that the economy had fallen off a cliff. But withholding has now recovered to the trend in force since mid May (CHART in subscriber report). It is now at an inflection point where it should signal whether the economy has gotten back on track, or is in the process of rolling over. This should happen over the remainder of this month. I’ll post an updated chart when it happens.

The Wall Street talking head community, with a few Fedheads chiming in, is now in a growing chorus that the Fed will start tapering soon. Our analysis has been that the Fed can only taper if the Federal deficit is shrinking, thereby reducing Treasury supply. If the Fed were to taper in the face of constant or rising supply, the market would need to adjust in order to absorb the additional supply. Bond prices would fall and yields would rise.

This is where the revenue trend is important. If it weakens, the deficit will grow and supply will increase. This is even before considering the $1 trillion infrastructure spending package. If revenue growth stays strong, the Fed could conceivably do a small cut in QE (aka taper) without crushing the bond market. That could turn into the muddle through scenario.

The Treasury market rally of recent months has meant that Primary Dealers have built a profit cushion that would provide some protection in the event of bond market price weakness. In addition, initially, the supply increase that results from the lifting of the debt ceiling will be funded by the trillion + dollars that has been deposited in the Fed’s RRP program. That is still growing as the Treasury continues to pay down T-bills.

Those two factors will delay a bond market crisis for xxx xxxx (subscriber report).

It depends on when the debt ceiling is lifted, how much tax revenue the US economy is generating, and how much the Fed cuts its purchases of Treasuries and MBS as it begins the “taper.”

A muddle through scenario is always possible, but a crisis is also possible, if not more likely. The timing is in question, but it should come xxx xxxx xxxx xxxx (in subscriber report). The timing will become clearer as the trends of the data begin to show themselves once the debt ceiling is lifted. That includes the supply schedule, the trend of Federal revenue, and the Fed’s schedule of reduced purchases.

In the meantime, the status quo rules. As long as the Treasury is using its cash to pay down t-bills, the uptrend in stocks should continue. The selloff in Treasuries over the past week should reverse as those paydowns continue.

See the full report for the charts, more details on the supporting data and how we arrive at these conclusions, along with the timing, and an idea of the appropriate strategy under these conditions.

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Here Are the Stock Market’s Latest Targets

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A 10-12 month cycle high is now ideally due within xxxxxxxx (in subscriber report), with a final projection of 4440.

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But the 13 week and 6 month cycles appear to be in trending mode, with no projections. Shorter term cycles remain in up phases. The 6-7 week cycle has a projection of xxxx (subscriber report).

On the third rail chart the market has formed a new short term channel. It’s lower bound rises from around 4450 to 4500 this week. Additional multiple support lines are rising just below that. The lowest is heading for xxxxx (subscriber report) this week. That needs to break to consider the possibility of a downside reversal.

On the weekly chart, long term cycle momentum has broken out. This suggests that the market could go higher for longer, which means perhaps 4-6 months, or perhaps years. Cycle oscillators are also very strong. This isn’t set up for a top. Trend support is now at 4370. Resistance and a possible near term target is at xxxx (subscribers only).

Long term cycle projections point to xxxx to- xxxx with highs due between August and xxxxx.

On the monthly chart, the S&P 500 would need to end August below 4200 to signal a potential reversal of the uptrend. If the SPX clears long term trend resistance around 4500, the target would rise to xxxx.

The long term cycle momentum indicator remains bullish.

Cycle screening measures remain bullish.

The chart picks report will be posted on Monday morning.

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. 

Gold is Facing the Kiss of Death

The scary part of this week is the premature failure of the 13 week cycle up phase. It confirms the down phases in bigger cycles and sets up a kiss of death. This report shows how, along with price and time targets for the short, intermediate, and longer term.

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Chart Picks – 41 Buy Signals and 28 Sell Signals Give Us 3 Picks

The limited number of open picks managed a slight positive last week as the market edged to a new high by a hair. There were 3 open longs and one open short.

This Friday’s screens had a bullish tilt, with 41 buy signals and 28 sell signals. This indicates minimal thrust and some drag but it’s enough to keep the averages churning higher in small increments.

I liked the setups on xxx, and xxx as longs, and xxx (in subscriber report) as a short. I will track these as of Monday’s opening price.

Get the newest picks and review their charts and those of existing picks in today’s report. Technical Trader subscribers click here to download the complete report. 

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We’re There, And Here’s Where That Is

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A 10-12 month cycle high is now ideally due within xxxxxxxx (in subscriber report), with a final projection of 4440 and a 13 week cycle high is ideally due on xxxxx, this week.

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We’re there, but would I bet on it? No. Short term cycles are bullish, and both the 6 month and 13 week cycles seem to be trending. So I would like to see evidence that the trend is broken.

I don’t mind being a little late at the top. Betting on the short side has been a tough way to make money.

On the third rail chart the market continues rising within multiple channels. Short term channel support rises from 4400 to 4435 this week. Additional multiple support lines rising from around xxxx and xxxx should contain any pullback. Major trend support is around xxxx (subscriber report). Only if all of those are broken could is a significant reversal possible.

On the weekly chart long term cycle momentum broke out last week, ending a negative divergence. This suggests that the market could go higher for longer, which means perhaps xxxx months, or xxxxx. Cycle oscillators are also very strong. This isn’t set up for a top.

Trend support is now at xxxxx. Resistance and a possible near term target is at xxxx.

Long term cycle projections point to xxxx-xxxx with highs due between xxxx and xxxx.

On the monthly chart, the S&P 500 would need to end August below 4200 to signal a potential reversal of the uptrend. If the SPX clears long term trend resistance around 4500, the target would rise to xxxx.

The long term cycle momentum indicator remains bullish.

Cycle screening measures remain bullish.

The chart picks report will be posted on Monday morning.

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. 

US Economy Just Went Over a Cliff

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Wall Street wiseguys and the mouthpieces of the Mob @CNBC and @WSJ don’t know it yet, but the US economy went over a cliff in the last two weeks. They don’t know because they’re not tracking the real time Federal tax collection data like we are. And that data shows us that’s what happened.

Here’s the data, what it means for the market and for us, and some suggestions on how we might view it and use it to possibly profit in the short run, and protect ourselves in the longer term. There are an unusual number of variables, unknowns, and yet to be knowns in this outlook, but we have a general idea of a couple of likely scenarios on how the next few months might unfold. If you want to avoid the catastrophe that lies ahead, it behooves you to be familiar with those scenarios, and to track the variables as they become known.

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Subscribers, click here to download the report.

Available at this link for legacy Treasury subscribers.

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

Act on real-time reality!

Gold, Chicken or Egg

Cycle juxtaposition expresses as range or does the range cause the juxtaposition. This report gives the parameters that will signal change. Meanwhile, there’s still that one lonely mining pick.

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