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Chart Picks for the Week of June 28, 2021

Lee Adler

Yet again, whenever I pick a few shorts to add to the list, the market smacks me upside the head. Fool me once, shame on you, fool me twice, shame on me. It’s like our permabear friends, whose names I’ll withhold out of respect for the dead, who have been warning for 12 years that the market is about to crash. They will be right one day. Well, every few months I’ll see a few short picks that I like and add them to the list. We’ll probably keep losing money on them, but one day, I’ll be right. You’ll see! 😆

Good grief, though. I’m beginning to wonder if this will ever end.

The list had an average performance of -0.2% on an average holding period of 6 calendar days, including a couple that got stopped out.  I’m adding two longs this week.

The current screen from charts as of the close on Friday, June 25, had 48 buys and 7 sells. Two of the sells were inverse funds, making the final score Bulls 50, Bears 5. I am adding two of the buys to the list for this week. They are highlighted in green in the chart below.

The bulls won every day last week, of course.  For the past 5 trading days, there were 244 buys versus 48 sells, a spread of +206. That’s the biggest bullish tilt since +218 on May 20.

But the character of this is different than the last two times there was a triple digit buy side advantage. Both of those rode the back of one big thrust day. This time it’s just been a steady roll higher. It feels like an end stage move, rather than an initial thrust.

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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Now The Balance Begins To Shift

Lee Adler

The balance between QE and Treasury supply will begin to shift in July. The underlying bid it has provided for stocks and Treasuries will begin to fade.

This report tells why, and what to look for in the data and the markets.

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Flying Blind, But They Warned Us

Lee Adler

Cycles are topping out. That includes the big ones.

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. 

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Pick List Longs Escape With Flying Colors, Now for the Shorts

Lee Adler

Every week I run technical stock screens covering all NYSE and NASD stocks trading above $6 and averaging more than 1 million shares a day. This typically results in between 15 and 50 charts to review visually. I’m looking for low risk, high reward price structures, which I’m not smart enough to program into the screening process. But it’s ok. I like to look at charts. 

Existing picks, all longs, held up pretty well in last week’s selling. 3 of them dipped below their stops, with gains in two of the three. The newest pick, XXXX (subscribers), added last Monday, did surprisingly well.

As a result, list performance rose to an average of +4.2%, up from +0.2% the week before, on an average holding period of 16 days. The percentage change assumes cash trades, no margin, no options.

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Bond Market Has Mitigated Some of the Risk, But Don’t Go To Sleep

Lee Adler

In Part 1 of this report, I covered dealer positions, financing, and hedging.  Dealers have mitigated a significant amount of risk by selling paper to the Fed, reducing their inventories, and increasing their hedges. They’ve also benefitted from the rally in prices over the past few weeks. That rally has largely been driven by the Treasury paying down T-bills.

This report looks at several large bank measures, including net unrealized profits or losses of large banks on trading positions, and week to week changes in total bank capital. Those changes indicate the profits of the entire banking system, or in this case, the 25 largest US banks.

The data suggests that the big banks who are largely the parent firms of the primary dealers, haven’t been as profitable as their earnings report suggest, or that at least they have not increased their capital at all.

They aren’t required to mark their investment portfolios of long term bonds to market. If they need to liquidate any of that, then those losses will be recognized. There’s some chance that they will need to liquidate later in the year, as Treasury supply increases, putting downward pressure on bond prices.

Meanwhile, Treasury paydowns will continue to support a bid for both bonds and stocks, for as long as they continue. Rip roaring tax collections have slowed the drawdown in the Treasury balance, so the paydowns will probably continue at their current pace, if not more, until xxxx (see subscriber report)

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Despite the weakness in stocks and bonds in the wake of today’s FOMC announcement, these conditions argue for the churning slight uptrends in stock and bond prices to continue until xxxx. Conditons will then turn more bearish. I tell you when that will be, and what my strategy is.

Subscribers, click here to download the report.`

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

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

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Gold on the Cusp

Lee Adler

Gold is in a very precarious place on the charts. The only thing we have to fear isn’t just fear itself. Here’s what I’m worried about. Despite that, I added a chart to our mining picks.

Subscribers, click here to download report.

Our mining picks held their own last week, and we’re holding on to them this week. Here’s the list, with charts.

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Market Engine Whines Without A Rudder

Lee Adler

Cycles are mixed, and cycle screening measures are deteriorating, but there are still reasons to expect the averages to head higher. Here’s what they are, with price and time targets, as well as levels to watch for signs of a big reversal.

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. 

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When This Boring Market Finally Reaches the Center of the Earth

Lee Adler

Every week I run technical stock screens covering all NYSE and NASD stocks trading above $6 and averaging more than 1 million shares a day. This typically results in between 15 and 50 charts to review visually. I’m looking for low risk, high reward price structures, which I’m not smart enough to program into the screening process. But it’s ok. I like to look at charts. 

My picks from the screens are churning along with the market. 3 picks dipped below their stops, with losses in two of the 3 resulting in a flat performance for the list overall.  List performance slipped to an average of +0.2%, down from +1.0% the week before, on an average holding period of 13 days. The percentage change assumes cash trades, no margin, no options.

It’s boring as hell.  All there is to do is to keep nibbling on charts that look promising. I managed to find one pick among Fridays’ screen output of 43 signals that looked good enough to add to the list this week. The idea is that when the market finally starts to move, we’ll have picks on the list that are positioned to take advantage.

The current screen from charts as of the close on June 11, had 28 buys and 15 sells.  That was the first time last week that buy signals had the edge. For the past 5 trading days, there were 95 buys versus 116 sells, a spread of -21. That compares with last Friday’s -37.  This is down from a peak of +218 on May 20.

However, there’s been no momentum breadth thrust to the downside either. So we wait for an impetus one way or the other. The market has simply drifted and churned, with most charts ambiguous, and few showing clear impetus either way. We’re looking at about 1300 stocks that meet minimum price and volume criteria, and only 43 generated signals either way. Booooring.

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Have Primary Dealers Built a Muddle Through Scenario?

Lee Adler

For several months, I’ve been positing the idea that when the Treasury gets its cash level down to the legally required limit, the stock and bond markets would be in big trouble. The risk of a crash would be as great as it ever is. I posted an expected time window (in subscriber version)  where it would be a good time to get out of both the stock and bond markets.

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That conclusion came from the idea that:

• Primary Dealers were overleveraged in their fixed income portfolios.

• That the market has been artificially buoyed by the Treasury paying down T-bills. It has now injected $620 billion into the accounts of dealers and investors since February 23.

• That when the Treasury reaches the required cash level of XXX billion (reported in subscriber report), the paydowns will stop.

• That record levels of deficit spending would then no longer be partly funded out of the Treasury’s cash on hand. That would require a dramatic increase in debt issuance.

At first I estimated that that would happen in xxxx (see subscriber version), but lately I’ve pushed that estimate back to xxxx (subscriber version). At that point, the increase in Treasury debt supply would supposedly begin to push bond prices down both in Treasuries, MBS, and corporates.

Highly leveraged dealers would then face forced selling as they were required to meet collateral calls on the inventories they had financed with repurchase agreements (repos). Repos are just a fancy kind of short term borrowing to finance securities purchases, similar to when we use margin debt to buy stocks.

All of that still looks likely to happen. But instead of a crash, I can now see the possible outline of more of a “muddle-through” scenario. I still expect trouble to arrive around xxxxx (in subscriber version), with maybe a few weeks of Wile E. Coyote market action.

But maybe that trouble won’t be quite as bad as I first thought.

There are two reasons for that. Discussion in subscriber version.

The end of Treasury paydowns will, no doubt, cause yields to rise over a short period of time. And that could have been catastrophic.

But lo and behold, we see Primary Dealer data that suggests it won’t be as bad as I had feared. I show that data in a couple of tables and charts in this report.

We won’t know for sure until we get there. I’m still looking at xxxx (in subscriber report) as a likely top in the markets. We’ll just have to see how conditions evolve over the next (time period in report), and take action accordingly. For now, while the Treasury continues to pay down outstanding T-bills, we can follow this strategy (discussed in report).

Subscribers, click here to download the report.`

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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!

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

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