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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.

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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.

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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. 

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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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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Chart Picks – Trading Range Death Trap Yields Two Picks

While the market averages edged to new highs last week, that’s deceptive as most stocks stayed rangebound. That’s a death trap for swing trades, and it depressed performance for a third straight week.

This Friday’s screens were bearish, with 12 buy signals and 28 sell signals. That suggests some downside ahead but so far in the pre market, the bulls are in charge. I liked the setups on two of the charts. One was a short xxxx (subscribers only). The other was a long, xxxx. I’ll add those to the list as of Monday’s opening prices. Charts below.

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

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Here’s How Fed and Treasury Colluded to Delay Armageddon Due Date

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Intro

The Fed has bought mass quantities of Treasuries and MBS over the past dozen years, in what are called Permanent Open Market Operations or POMO. This is just a fancy name for trading with Primary Dealers. We call the Fed’s massive asset purchases Quantitative Easing, or QE. The Fed buys that paper strictly from Primary Dealers with rare exceptions. The dealers then use the cash to buy more paper, whether more Treasuries, MBS, stocks, or other financial instruments.

QE has become the primary source of demand for absorbing the supply of financial assets. The primary source of supply is the US Treasury which has lately been issuing an average of $200 billion per month, or more, of Treasury debt. The market must absorb that. In the absence of QE, prices would be under constant downward pressure. Since stocks and bonds are to some extent interchangeable financial assets, both asset classes would be affected.

The Fed has made sure to print enough money, that is to pump enough cash into the accounts of Primary Dealers, to ensure that prices maintain a steady upward course. The Fed has made sure to engineer QE to all but guarantee bull markets in stocks and bonds.

At some point that could change, and we watch the data carefully in order to estimate when that’s likely to happen.

The QE vs. Supply Equation

QE has thus become the primary fuel that powers demand for financial assets.

The flow of QE cash to the Primary Dealers is almost steady, with a non-material reduction in MBS purchase settlements scheduled for mid month.  Meanwhile, Treasury supply, to this point has been steadily enormous, fluctuating within a semi predictable range month to month. Not much has changed since the Fed’s pandemic emergency phase of QE began in March of 2020.

Until now. The big change is that the Federal debt ceiling is now back in force, which means that Treasury issuance will first slow, and possibly stop, until Congress raises the debt limit. This will reduce new Treasury issuance. Supply will be constricted. The reduction in supply could give the bond market rally a second wind, or it could accrue to stocks, or both.

So it will be bullish for awhile. Then it will stop. Then we’ll have a Wile E. Coyote moment. And then it will end. Badly. Here’s the how, why, and the timing.

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Closer Every Day

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Cycle time and price projections suggest that the market is getting close to a high. But it’s not there yet. The 13 week cycle high is ideally due around xxxxxx (in subscriber report), with a projection of xxxx (in subscriber report). The 6 month cycle still seems to be in trending mode with a new projection of xxxx. The 10-12 month cycle is ideally due to top out within x weeks, with a new projection of xxxx.

On the third rail chart the market continues rising within multiple channels. Short term channel support rises from 4370 to 4405 this week. Additional multiple support lines rising from around 4360 and 4330 should contain any pullback. Major trend support is around xxxx (in subscriber report). Only if all of those are broken could is a significant reversal possible.

On the weekly chart, a possible target of this move is now at xxxx. The market would now need to conclusively break xxxx to signal a reversal.

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

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

The long term cycle momentum indicator remains bullish.

Cycle screening measures remain bullish, despite Friday’s pullback.

The chart picks report will be posted on Monday morning.

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. 

Fed Finally Starts the Standing Rippo Farcility

They’ve been threatening to do it for two years, and finally pulled the trigger. The Fed’s captured media barely gave it lip service, with a brief mention here and there. A sharp eyed Liquidity Trader subscriber, Chet, called my attention to this well hidden tidbit yesterday.

Here’s the relevant part of yesterday’s announcement by the NY Fed.

Under the SRF, the FOMC directed the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York to conduct overnight repo operations with a minimum bid rate of 0.25 percent and with an aggregate operation limit of $500 billion, effective July 29, 2021. As with the Desk’s existing repo operations, the SRF will be cleared and settled on the tri-party repo platform. Treasury, agency debt, and agency mortgage-backed securities will continue to be accepted. All other terms will be the same as the existing overnight repo operations.

Primary dealers will continue to be counterparties for repo operations under the SRF. The SRF counterparties will be expanded to include additional depository institutions.

Chet wrote:

Why do they need this? Are the money markets who normally participate in the private repo market perceiving counter party risk? Even if the collateral they get overnight or term is pristine?
I am watching all the CNBC talking heads right now, they don’t have a clue. They should be reading your newsletter on Macro Liquidity. 

Without Chet, I may have missed that Fed release. It was not part of the FOMC statement, but was noted in a separate release at the same time as the usual Fed statement. It was designed to either be ignored, or at least under emphasized.

In that, they succeeded. Did anyone ask about it at the press conference? Yes, Mike Derby of the Journal asked a one line throwaway about it, and Powell gave a throwaway answer:

Derby: So I wanted to ask you about the standing repo facility and get your sense of what you think it will do for market trading conditions.

Powell: So, on the standing repo facility, what is it going to do? So it really is a backstop. So it’s set at 25 basis points so out of the money, and it’s there to help address pressures in money market — money markets that could impede the effective implementation of monetary policy. So, really, it’s to support the function of — functioning of monetary policy and its effectiveness. That’s the purpose of it. And it’s set up with that purpose in mind.

What a useless crock of shit that answer was.

I had not given much thought to the SRF recently, because I have always felt it was a non-issue. The Fed has always made unlimited amounts of repo funding available on an ad hoc basis when crisis demanded, so why would this matter?

Chet’s question made me revisit my thinking and I sent him this response.

I’ve long said that the idea for a Standing Repo Facility is smoke and mirrors. What’s the difference between it and offering them on an ad hoc basis when required, as they’ve always done? But I think I see their rationale for it. And it’s not what they say it is, of course.

Right now, there’s too much cash in the system from the Treasury paydowns, so it’s currently a moot point. But when that cash is gone in a few months, if the Fed opts not to take up the additional Treasury supply by increasing QE to absorb it, then the dealers will need to resort to repo to finance it.

[Additional note: Otherwise bond prices would fall and yields would rise.]

I guess the difference is that if they call it a “standing” facility, that means permanent. And that’s almost as good as outright QE to the dealers [because they would never have to pay it back], except that the cost would be variable, and would rise, if the market tightens.

Another thought is that by having this, it gives the Fed the backstop it needs to pretend to taper QE [emphasis added] No question that something will be required to absorb the Treasury issuance. If it’s not outright QE, then it will be the SRF.

At this point the SRF is a non-issue. If they ever start to use it, we’ll have to see if the dealers redeploy enough of it to keep the markets levitated. As I said in the Lindsay Williams podcast interview (Bond Yields Down, Inflation Up, Here’s Why), there are simply too many variables that will come into play beyond the next 3-4 months to make an accurate forecast [beyond that length of time] now.

Thanks for alerting me to this! I wasn’t paying attention at all today. I was out exploring Warsaw!

To sum up, there’s currently no need for this facility. But when the Treasury runs out of cash (timing analyzed here) Congress will raise or suspend the debt ceiling, and the Treasury will start issuing more debt. If the Fed wants to keep bond yields down, it will need to buy more of that new debt, or fund it in some other way. There’s no way it could taper its purchases if it wants to hold yields stable. If it doesn’t buy more paper, then they hope that the SRF will do the trick.

If it doesn’t they would either have to let Treasury prices fall, and yields rise, up to a point. That point is the level that triggers a crash. You can forget about the Fed ever tapering purchases other than a token show trial for a month or two. To seriously reduce their purchases would be an act of financial mass murder.

They will either need to increase their purchases (more QE whoopee) or do repo, lots and lots of repo. The $500 billion they have initially set will be gone in a few months. Then they’ll go to a trillion, then who knows.

It’s all so sordid. But I’m not here to moralize about why this is so gat-danged wrong. We’re only interested in the practical effects of Fed policy on the prices of stocks and bonds. I analyze that and give you the look ahead for the time frame that’s reasonably foreseeable in the Liquidity Trader Money Trends reports. If you are a new subscriber, you can try them risk free for 90 days.

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Be Careful of that Yellow Stuff

Gold remains at risk despite a positive sign in the miners yesterday.

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