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Weakening Cycle Patterns in Stocks Portend Worse to Come

Cycles – The 6 month cycle should be in a xxxx xxxx xxxx (subscriber version). Here’s why the next low could entail a short term crash.

The 10-12 month cycle projection now points to xxxx (subscriber version), but there’s still room for it to shift over the next 2 months. Indicators for that cycle are at new lows. A potential positive divergence from the market averages has been obliterated.

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Short term cycle projections now point to xxxx-xxxx (subscriber version), with lows due between now and the end of March.

Third Rail Chart – Trend resistance begins at 4290 on Monday, descending to 4275 and/or 4240 on Friday. If they clear those, then the next resistance zone and target would be the xxxx-xxxx (subscriber version) area.

On the downside there are multiple support lines from 4200 to 4175 this week, with rising long term channel support at 4150. If xxxx (subscriber version) is broken, it’s game over for the bulls.

Long Term Weekly– Long term cycle momentum has joined 3-4 year cycle indicators in signaling a likely bear market.

Monthly Chart – The market now looks unlikely to return to the uptrend channel. Trend support is around xxxx in March. Long term momentum is on a preliminary sell signal.

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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. 

Get Ready For Serial Market Crashes

The last time we looked at the Composite Liquidity Indicator (CLI), 4 months ago, I warned that the process of flattening the indicator was beginning, and that that would lead to bad things happening. Those bad things have been under way for a couple of months, but they have barely scratched the surface of the potential of what’s to come as this line turns flat. See chart (subscriber version).

The stock market is approaching 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.

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Then we face the prospect that liquidity could be even tighter than during the period of October 2017 to September 2019 when the Yellen Fed was temporarily “normalizing” its balance sheet. See chart (subscriber version).  The Fed is again threatening to begin shrinking the balance sheet. But this time around the market must absorb a far higher amount of new Treasury supply than it did in 2017-19, when the Fed last tightened.

Shrinking the Fed’s balance sheet now would pull cash out of the banking system, causing deposits to at least turn flat, if not shrink outright. I would have to bet that the Fed will never get to that point. The effects of merely holding QE at zero will be bad enough.

As for the War in Ukraine, it’s not helping, but stocks were already down nearly 9% the day that Putin attacked. Furthermore, historically, periods of war have been bullish for stocks. That’s because central banks have typically printed reams of money during wartime. Today, the Fed doesn’t have that luxury, with the  CPI headline print almost 8%, and actual inflation at least 13%.

Wars don’t drive asset price trends. Central bank policy drives asset prices. Today, central banks simply cannot be easy during this wartime because of the devastating inflation already under way.

Under these conditions, where systemic liquidity stays flat, at best, my bet would be that we will see cataclysmic selloffs in stocks at times. Violent rallies will follow, but will inevitably result in lower highs.

Led by the Fed, the world’s biggest central banks have painted themselves, and us, into a corner. They can no longer continue to tilt the playing field in favor of the continuation of a long-running secular bubble. The consequences would simply be too dire.

On the other hand, there will be equally terrible consequences for maintaining tight policy. And I’m not talking about how much they raise interest rates. That’s a sideshow that is an effect of tight money. The market will tell the Fed what to announce about rates. It must simply rubber stamp the market, lest the public realize that the Fed doesn’t control rates the way that it wants the public to think that it does.

Now the Fed is not printing enough money to absorb virtually all new Treasury issuance, with additional cash left over to support stock prices. If it sticks to this new policy of no QE, money rates will rise. Bond prices will fall and yields rise, margin calls will go out. Stock prices will fall. More margin calls will go out. And so on.

But only when consumer prices start to fall will the Fed be able to resume QE. By then, asset prices should be much lower than they are today. Therefore, I will continue to focus on looking for good short to intermediate term stock xxxx xxxxx (subscriber version).. I would continue to xxxx xxxxx (subscriber version). the bond market xxxx xxxxx.

Even bondholders who hold to maturity will get robbed. Inflation will eat them alive.

Will gold be a long term hedge for all of it? In theory, it should be, but we all know about the difference between theory and practice. Meanwhile, the long term charts of gold and some gold mining stocks look more bullish.

I’ll continue to use technical analysis in the Gold Trader reports to try to identify when this gold bull breakout is overdone. And I’ll continue to look for good entry points for getting long the mining stocks.

Meanwhile, none of this has come as a surprise. We were forewarned.

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Gold Breaks Out of Massive Long Term High Base, Miners Surge

Short term cycles have extended through expected peaks, thanks to the extraordinary circumstances. Projections on the 13/17 week and 9/12 month cycles  have risen and now point to xxxx  to xxxx (subscriber version) up from 2000 last week. We are in the window for highs to form on those cycles. However, given the extraordinary circumstances, I would not assume an end to the spike until we see technical evidence of it, such as trendline breaks and downturns in momentum indicators.

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The high base breakout on long term charts that we’ve been looking forward to is essentially complete, and confirmed by a breakout in long term momentum. The initial conventional measured move target is xxxx (subscriber version).

A long term cycle high is due in xxxx.

The correction has ended in the mining stocks. Short term cycles rejoined the two longer cycles on the plus side. The 13 week and 6 month cycles are near maximum strength. In bull markets this is not a sign of an overextended trend.  In past bull phases such conditions have lasted for weeks at times. Normally, negative divergences in these numbers would precede price peak in the sector.

Over the  week ended March 7, 46 charts of the 52 mining stocks that I track had at least one buy signal. 30 had at least one sell signal, which means that a few swung both ways. It’s like that.

These are for swings of 3-5 weeks. For the prior two weeks there were a plurality of sell signals. The corrective phase ended with a bang last week.

I rescreened the stocks that had at least one buy signal from last Tuesday through the week, for repeat buy signals on Friday and Monday. There were 34, which is extraordinary. I inspected those charts looking for good entry setups for picks to add to the list this week.

Most had risen to, or just below major resistance. While the trends are all bullish, these are not low risk short term entry points. Then the question was whether to take a shot on a laggard or two. While these are extraordinary circumstances, my answer there was, again, to stick with the discipline. So I’m adding no new picks this week.

Over the past week there were 6 open selections. All had gains. The average gain was 21% with an average holding period of 31 calendar days. That’s up from 8.7% and average holding period of 24 calendar days the week before.

I’ve adjusted stops on all open picks. Table and charts below (subscriber version).

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See analysis, table of picks 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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Fewer Picks Remain But Still 100% Short, With Gains

The raw daily data for last week ended with a slight edge to the buy side. The final score for the week was 188 to 153 Buys over Sells. That compared with the prior week’s even-Steven Sells 215, Buys 216. This is 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.

The shrinking number of total stocks having signals, and the narrow spread between buys and sells, are symptomatic of a rangebound market with no thrust, and no sign of breaking into an up or down trend.

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However, on Friday, March 4 alone, there were just 17 buys and 65 sells. It suggests that the market may be beginning to tilt toward the bears. A down move on Monday would solidify that.

I screened just the lists of previous daily buys and sells for final signals on Thursday and Friday, looking for a progression of signals through the week. The final lists resulted in only 8 buy signals and 8 sell signals. Another reflection of a market going nowhere.

I examined each of these 16 charts for ones to add to the chart pick list for this week. None of the buys looked interesting. Several of the sells did, mostly financials, but they were trading near major support levels. That’s usually not a propitious entry point to go short. Even if they break down, there is usually a recoil move that’s a better short sale entry.

Last week gave us gains on average on the 15 picks, all shorts, that were open to start. This was despite closing out 7 picks with losses. They were all shorts. Four of them, I had decided to close as of Monday’s open. The rest hit the stops I had suggested. That left 8 picks still open, again, all shorts.

Including both the closed picks and those still open, the list had an average gain of 3.3% on an average holding period of 10 calendar days.

There are no new picks, so we will start this week with just those 8 shorts still on the list. They all have gains. I adjusted the trailing stops that are intended to close out picks as they are hit.

The picks that remain open, and those closed out last week are shown on the table below (subscriber version only). Charts of open picks are below that.

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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Why I Don’t Care that Short Term Indicators Are Bullish

Cycles – Cycles are mixed and opposed, expressed as a rangebound market that is likely to xxxx xxxx xxxx (subscriber version).. The timing and direction of a breakout xxxx xxxx

Short term cycles are opposed, with neither dominant. The 13 week cycle is in a weak up phase due to peak at any time this month. The 6 month cycle low is due between now and May. The cycle projection was xxxx xxxx (subscriber version). The 10-12 month cycle has been dormant and it’s not clear when xxxx xxxx xxxx. Indicators for that cycle are borderline, but still in a downtrend.

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Third Rail Chart – The bottom of a short term uptrend channel rises from roughly xxxx to xxxx (subscriber version) in the week ahead. If that line is broken, the larger downtrend would be in charge.

To keep a short term uptrend going, the market would first need to clear a resistance cluster around xxxx xxxx . Then it would need to clear an intermediate downtrend line that would be at xxxx on Friday. Barring that, the downtrend remains in force.

Long Term Weekly– Long term cycle momentum has joined 3-4 year cycle indicators in signaling a likely bear market.

Monthly Chart – The market now looks unlikely to return to the uptrend channel. Trend support is around xxxx in March. Long term momentum is on a preliminary sell signal.

Cycle screening measures – The current pattern is neutral to slightly bullish short term, and xxxx to xxxxxxx xxxxxx on the intermediate and longer term trends. Cycle breadth-momentum weakened throughout the rally last year, and continues to do so.

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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. 

Withholding Tax Surge in February was All Inflation

Federal tax collections looked strong for the full month in February.

Don’t be fooled. It was an illusion due to a calendar effect and inflation.

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That’s a sudden, dramatic sea change from the strong growth path of the past 6 months or so.

This bodes ill for my expectation that a booming economy would boost tax revenues to help offset the amount of new Treasury issuance that the market would need to absorb. Even taking that optimistic assessment of tax collections into account, I had expected the market to still be unable to digest all the new supply without the Fed doing the lion’s share of it. I had still expected an ongoing bear market in Treasuries.

Now the situation looks even worse, and the short term flight to safety rally isn’t helping the situation.

Here’s why (subscriber version).

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Gold Consolidates, More Upside Ahead

Gold and the miners are consolidating for more gains. Longer cycle projections range from xxxx  to xxxx (subscriber version).

Over the week ended February 28, 24 charts of the 52 mining stocks that I track had at least one buy signal. 46 had at least one sell signal. These are for swings of 3-5 weeks, so it merely suggests a short term correction for most stocks in the sector. Last week’s signals had also suggested a short term correction.

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So far, that’s how it looks. A screen of all 52 stocks in the group on Monday had 9 buy signals and 10 sells, which again suggests consolidation and range trading for the sector.

I rescreened the stocks that had at least one buy signal from last Tuesday through the week, for repeat buy signals on Friday and Monday. There were 4. I inspected those charts but did not feel that their setups were propitious for entry now.

Two picks on the list last week hit their stops and were closed. That will leave us with 6 open selections. All had gains. Including currently open picks and those closed last week the average gain was 8.7% with an average holding period of 24 calendar days. That’s up from 6.9% and average holding period of 19 calendar days the week before.

I’ve adjusted stops on all remaining picks. Charts below (subscriber version)..

Subscribers, click here to download the report.

See analysis, table of picks 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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Swing Trade Chart Picks Go Haywire

The raw daily data for last week ended in a virtual tie. The final score for the week was 216 to 215 Buys over Sells. That compared with last week’s Sells 212, Buys 101. These numbers count stocks with at least one buy signal or sell signal during the week.

As a result of the big rally, on Friday, February 25 alone, there were 203 buys and 17 sells. That came out of the blue and was enough to even the score for the week.

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I screened just the lists of previous daily buys and sells for final signals on Thursday and Friday, looking for a progression of signals through the week. I ran screens on these lists to create the final list for visual review for chart picks.

The final lists resulted in just three buy signals and 9 sell signals. I looked at each of these 9 charts for ones to add to the chart pick list for this week. Zilch. The charts were a mess – completely inconclusive upon visual review.

9 final signals is an extremely low number. It leaves me thinking that the previous week’s sell signals may still have some life, despite the strong rally on Friday, and other signs of a possible bottom in the broad market indicators.

Last week got off to a great start, then KABOOM, the market zoomed upward, and many of the shorts on the list got squeezed. The end result was a mixed performance, essentially a breakeven, with an average holding period of 7 calendar days.

3 of the picks will be treated as covered as of today’s opening price. The rest have new or adjusted stops. I will use trailing stops to close out picks as they are hit.

The picks that remain open, and the ones to be closed at today’s open are shown on the table below (subscriber version only). Charts below that.

 

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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A Bottom, of Sorts

The stock market seemed to make a 13 week cycle low in the expected time window late last week. But as we watch in horror as Putin brutally attacks Ukraine, it’s natural to wonder if this will stick. My guess is that we’ll see ….. (subscriber version)

On the other hand, the disruption to the world system of bank transfers and locking down Russian central bank foreign exchange transactions are unknowns. Fed and ECB intervention are certain, but uncertain in whether they’ll impact the stock market in terms of preventing a crash. Right now, the charts suggest that crash risk has been xxxx xxxx xxxx (subscriber version).

We’ll see. I’m not going to pretend to know the unknowable. Day traders will need to trade the minute charts. The rest of us should try to stay disciplined in doing what the daily charts tell us. The big increase in volatility, which is very short term wave amplitude, makes that difficult. It’s a sign that liquidity is drying up. That ain’t bullish. That’s for sure.

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Cycles – The 13 week cycle has probably xxxx xxxx xxxx (subscriber version) along with xxxx xxxx xxxx. The initial projection is xxxx.

The 6 month cycle may also be bottoming. The projection of xxxx was hit, but there are no indicator confirmations yet.

The 10-12 month cycle has been largely dormant for a couple of years, and it’s not clear when a bottom is due on this down phase. However, the projection of xxxx seems solid.

Third Rail Chart – The market would have to break a trendline that ends the week at xxxx (subscriber version) to signal the end of the intermediate downtrend. On the downside, the first likely support area would be around (subscriber version), with a test of xxxx possible.

Long Term Weekly- Long term cycle momentum has joined 3-4 year cycle indicators in signaling a likely bear market.

Monthly Chart – The market now looks unlikely to return to the uptrend channel. Support is around xxxx in February, and approximately xxxx in March. Long term momentum is on a preliminary sell signal.

Cycle screening measures rebounded last week. The rally is suspect because it wasn’t preceded by a positive divergence in this indicator. The indicator is also well below the past several highs. Therefore, the short term pattern is still bearish. Last week’s low was also lower than the last short term low. This follows a series of lower highs. Therefore the intermediate pattern is also bearish.

Technical Trader subscribers click here to download the complete report.

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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. 

Liquidity With Eyes Glued to Ukraine

I’ve been doom scrolling my newsfeeds for the past few days, not getting much work done. What a catastrophe. War in Europe, just 120 miles from where I was living a few short weeks ago.

I just communicated with a Ukrainian friend who lives in Kyiv and owns a number of apartments there. She left the city with her family on Thursday, for what she felt was greater safety in the west of the country. She said that the Russians are shelling and firing missiles at civilian targets indiscriminately, and that many ordinary people have died. She called Putin crazy. Then she noted how proud she was of her countrymen for their firm resistance.

I made several friends in Eastern Europe during my 26 months living there. I got to know their attitudes toward Putin and the Russians. My friends are all older people. They lived for decades under Russian domination. They love freedom and they hate the Russians viscerally. They will never surrender, even if Russia finally dominates in this conflict and subjugates them.

The question for us here is how this will impact monetary policy. We already know that the Russian central bank will be blocked from moving money, and that some Russian banks will be blocked from accessing the international payments system. No doubt this chaos will trigger a roundabout detour in the Fed’s tightening policy.

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But will they actually reverse and return to QE? We’ll have to see what’s next. I would suspect that most of the easing would be directed at their cohort, the ECB, and other central banks. My guess is that they won’t immediately return to outright QE, pumping money into Primary Dealer accounts again, at least not right away.

The Fed is boxed in. It faces the prospect of an international financial crisis. It faces the reality of 40 year record inflation that has the prospect of worsening. We’ll watch what the Fed says because it will lead us to what they’ll probably do. Although in emergencies, the doing comes first. And markets respond to the doing, not the talking, despite what the Fed and the high priests of Wall Street want you to think.

So unless they pump money directly back into the markets via buying securities from Primary Dealers, it won’t reverse the course of the financial markets. Bond prices will still xxxx xxxxx (subscriber version). and yields xxxx xxxxx. Stock prices will have their usual April seasonal bump from tax revenues being used to pay down Treasury debt for a few weeks. Then they’ll xxxx xxxx.

I believe that unless the Fed returns to buying paper from the dealers, that course is set. If they do return to QE, I’ll wait and see what the market response is. Normally I’d say it would be a go, bullish. But the dealers still have the option of simply paying down debt with the proceeds of selling their Treasuries and MBS to the Fed. If they were to do that, game over.

Meanwhile, I say what I’ve been saying for the past 18 months. I would continue to xxxx xxxxx (subscriber version) bond market. If I had any long term bonds in my portfolio, which I don’t, I’d xxxx xxxxx.

There are, of course, ways to xxxx xxxxx the bond market. I’d rather xxxx xxxxx stocks. Just my preference.

Stocks will have rallies. I’ll use the TA to xxxx stocks for swing trades when they look good for that. I’ll continue to report weekly on that, and the overall technical market outlook in the Technical Trader reports.

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