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Getting Short Up the Wazoo

Lee Adler

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Starting fresh this week, after closing out the last pick as of last Monday’s open, I am making some tactical adjustments going forward. First, I am now incorporating screens from the whole week, not just Friday. In that way I hope to snare charts going through a progression of short term buy signals leaving them more likely to move sooner, and in the right direction.

I will continue to (mostly) forego stops in the first week that a pick is added to the list. But I will avoid the stupidity of being overconfident after having some success for a few weeks, and then going on vacation without having trailing or protective stops in place.

I continue to feel that stops should only be used as triggers for exiting trades that we want to close out. That would include both those that have gone well and those that have not. I still do not like arbitrary stop loss as a strategy to reduce loss, because it has equal or greater potential to reduce profits on trades that ultimately turn into big winners. Stop running and false breakouts and breakdowns are time honored strategies of dealers and big speculators. Such whipsaws often lead to big moves.

The raw data for last week as a whole showed a preponderance of buy signals. But lo and behold, when I ran a screen on Friday just on the universe of stocks that had had signals earlier in the week, there were just 4 that had short term buy signals on Friday, versus 42 on the sell side!

I reviewed those 46 charts for structures that looked promising. I chose 9 shorts, shown on the table below.

Sticking my neck out, for sure, but those 9 charts look well positioned to roll over in the weeks ahead. I think that some patience will be needed. They may or may not pop a bit in the short run, so I’m giving them room to breathe without stops for now. It’s a risky strategy, but it’s consistent with the liquidity outlook and the intermediate term technical outlook for the overall market.

The table and charts of open and new picks are below (subscriber version only).

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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Still Looking for that Rigor Mortis Rally

Lee Adler

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The market averages and technical indicators have weakened, but look ready for xxxx xx xxxx xxxx (subscriber version)  before xxxx xxxx (subscriber version)  in.

Cycles – The short term wave looks like it should xxxx (subscriber version)  around xxxx to xxxx over the next week or so. A weak bounce or no bounce should lead to the 10-12 month cycle wave xxxx xxxx .

Third Rail Chart-  The market needs to get below xxxx to break the intermediate uptrend. Failing that, another assault on the highs would be likely.

Should the market break xxxx, the next area of likely support would be around xxxx. And below that, the xxxx-xxxx area would be significant. Breaking that would complete a nice top pattern.

Liquidity is turning bearish, but it will be a gradual process that would allow for possible extension of the stock market rally consistent with the above projections.

Long Term Weekly- SPX would need to end a week conclusively below xxxx(subscriber version)to signal the likely start of a bigger top.

Long term cycle projections point to xxxx to xxxx (subscriber version) ideally due this year. 

Monthly Chart – S&P remains in a narrow uptrend channel with resistance at xxxx (subscriber version). Above that is room to run to xxxx this month.  It would need to end the month below xxxx to break the uptrend and open a chasm to the next support around 4000.

Cycle screening measures are behaving in a way that is unlike the patterns that were prevalent throughout the bull market. Are the dynamics changing finally? Too soon to say, but a downturn from here would signal that the answer is more likely to be yes. The pattern would turn bullish again if the market xxxx x xxxxx xxxx (subscriber version).

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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. 

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Fed Will Administer Volckera to Cure Inflation Pandemic, and We’ll All Die

Lee Adler

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It’s that time of the month and that time of the quarter when all should be well for the markets. Except it’s not.

“That time of the month” is the Fed’s regular once a month MBS settlement week at mid month. This month it runs January 13-20, with total settlements of $90 billion. That’s still a big number, but it isn’t doing much good. And it will shrivel over the next several months as the Fed cuts new MBS purchases and replacement purchase shrivel due to rising mortgage rates. Therefore, right now is as good as it gets for the bond market, and secondarily for stocks.

It’s also the week for quarterly estimated Federal income taxes to come in from individual filers and corporations. That shrinks the monthly deficit in January. In normal times it would result in a surplus for the month. Typically the Treasury would then pay off some maturing T-bills, and the holders of those bills would be stuck with excess cash. Some of them roll that out to longer dated paper and a few even buy stocks. So it’s typically a short term bullish seasonal influence around the third week of January.

This year, not so much. The Treasury still is trying to refill its cash account and has $160 billion to go to reach its stated goal of holding $650 billion in cash. So the “January effect,” which is really just bullish seasonality resulting from the regular January T-bill paydowns, looks like a non starter this year. The performance of the stock and bond markets so far in January are a testament to that.

If the market doesn’t perk up over the next few days, then here’s what we have to look forward to.

February will be worse. xxxx xxxx xxxx xxxx (subscriber version). February always runs the largest cash deficit of the year as tax receipts dwindle and cash outlays mushroom due to the February tax refund bulge. The Treasury often draws from its cash account to pay for that, rather than issue new debt. But this year, the Treasury is trying to raise more cash. There’s going to be a ton of new Treasury supply in February and that will pressure not only the xxxx xxxx xxxx xxxx, but should have a secondary impact on xxxx xxxx xxxx xxxx. This report describes those impacts, and their timing.

My mantra is the same. I’m xxxx xxxx xxxx xxxx (subscriber version) bonds. I’m looking for stocks to short over the next few weeks for what should be a bearish month in February. I’ll post those in Technical Trader updates as they come up.

With the Fed cutting QE to zero, or so it says, the rest of the year could be xxxx xxxx xxxx xxxx(subscriber version). The Fed is worried about inflation. Rightfully so. A little too late, but what else is new.  Might it now be willing to pull a “Volcker,” allowing rates to soar, and allowing the chips to fall where they may? If they dare try it, the market’s retribution will be xxxx xxxx xxxx xxxx.

I’ll keep you updated on the developments and outlook. Get the full story in the subscriber version.

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What the Signs of Emerging Gold Would Be

Lee Adler

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Gold Cycles remain mixed with still no sign of an imminent breakout from the trading range. Here are the levels to watch.for signs of emergence (in subscriber version).

On the very long term monthly chart, gold remains above a critical trend area around 1790. If it ends January below that, it’s in danger of falling into the xxxx  xxxxx range (in subscriber version).

HUI – HUI remains locked in a range with no sign of an imminent breakout. A 13 week cycle up phase is flat and is ideally due to last xxxx xx xxxxx (in subscriber version). There’s no sign that longer cycles will xxxx xx xxxxx (in subscriber version).  A 10-12 month cycle high is ideally due between xxxx xx xxxxx.  If there’s no upside breakout before that, the rest of the year would set up xxxx xx xxxxx.  On the long term weekly chart HUI has broken its 6 month cycle MA. Here’s what that implies for the outlook (in subscriber version)..

On the ultra long term monthly chart, HUI remains entrenched in a 16 month downtrend. Ultra long term momentum remains precariously neutral. With HUI ending December below xxxx (in subscriber version) the target is xxxx–xxxx in the first quarter of 2022. It faces major resistance in the xxxx range. It would need to break that to end the downtrend.

Chart Picks – Short term screens for chart pick purposes did a little better. They’re more sensitive, more oriented toward swing trade timing than the longer cycle screens which have done so poorly. 12 of the 51 charts screened had signals, and 11 were on the buy side. I liked one of them enough to add to the list as shown on the table.

Picks closed out over in November-December had an average gain of 10% on an average holding period of  46 calendar days.

See table and charts (subscriber version).

Subscribers, click here to download the report.

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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No Mercy

Lee Adler

Technical Trader subscribers click here to download the complete report.

The extrication plan that I posted last week did not go well. All of the shorts hit their stops, resulting in losses in all but one of them. The list overall suffered a loss of 3.8% on an average holding period of 23 days. That was worse than the previous week’s 0.8% loss on an average holding period of 29 days.

I’ll close out the one long on Monday with a small gain.

Why so many sell signals from two weeks before failed so badly is a question that I can’t answer. It may be that the sell signals were too obvious, and that many traders were just gunning for the shorts. It is never a good idea to be so confident as to take a week off without stops. That’s one condition where stops are important.

Or don’t put positions on before year end. I’ll try to remember that one at the end of this year.

This Friday’s screens had 19 buys and 22 sells. That’s nearly even. It follows 16 buys and 34 sells the previous Friday. There was no sign of any emergent moves on any of the charts with signals. Most resulted from rangebound jiggles.

There’s just nothing to do this week. I await clearer setups.

Below is the record of last week’s drubbing. It was enough to wipe out all of the 3.1% average gain for picks closed out in December, with a few tenths left over.

The table and charts of open and new picks are below (subscriber version only).

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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Don’t Be Surprised, or Fooled, By a Rigor Mortis Rally

Lee Adler

Technical Trader subscribers click here to download the complete report.

The stock market is again at a fulcrum. It may or may not have one more rigid upright position left in its dying body. Don’t be surprised if it does. And don’t be fooled into thinking it’s a new upleg.

Third Rail Chart-  The S&P remains within uptrend channels. The most important support line runs from xxxx to xxxx (subscriber version)  this week. That would need to be broken to signal a downside reversal.

Cycles – The 10-12 month and 6 month cycles now appear to be in synchronized xxxx xxxx (subscriber version). But there’s still a yet to be negated 6 month cycle projection of xxxx. The 13 week cycle remains in an up phase for now, with a projection of xxxx. But short term cycles have entered down phases, with projections of xxxx to xxxx . If that is reached, would probably negate the 13 week cycle projection.

Liquidity is turning bearish, but it will be a gradual process that would allow for possible extension of the stock market rally consistent with the above projections.

Long Term Weekly- SPX would need to end a week conclusively below xxxx(subscriber version)to signal the likely start of a bigger top.

Long term cycle projections point to xxxx to xxxx (subscriber version) ideally due this year. 

Monthly Chart – S&P remains in a narrow uptrend channel with resistance at xxxx (subscriber version). Above that is room to run to xxxx this month.  It would need to end the month below xxxx to break the uptrend and open a chasm to the next support around 4000.

Cycle screening measures are at yet another inflection point. They need a solid xxxx xxx to turn the picture bearish, and a big up day to suggest a stronger bullish trend. Small moves would leave the status quo of a choppy uptrend in place.

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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Breakout Under Way!

Lee Adler

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We have some consequential new data in the past few days since I posted the QE/Treasury supply update on January 3. Treasury yields are breaking out. The RRP slush fund has reversed, and T-bill issuance is continuing at a breakneck pace. An initial jobs report shows tremendous growth, as foretold by the daily withholding tax data.

The ADP private payrolls data was released yesterday, and it accurately reflected what the withholding tax data for December already told us— that jobs growth is still going strong, or even accelerating. Whether the BLS Nonfarm Payrolls farce release on Friday shows this or not is anyone’s guess. You know the truth.

The US economy is going gangbusters, but the Fed has created and is imminently facing the greatest crisis in its history.

Here’s the latest in this ongoing financial soap opera for the ages.

Get the full story in the subscriber version.

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!

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When Boring Isn’t Bullish – Gold

Lee Adler

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Gold Boring trading ranges are often long term bullish. But this is gold. Cycles remain mixed with still no sign of an imminent breakout from the trading range. Short term, the most likely direction is xxxx xx xxxxx (in subscriber version).

On the very long term monthly chart, gold nears the end of December at a critical trend area around 1790. If it ends January below that, it’s in danger of falling into the xxxx  xxxxx (in subscriber version).

HUI – HUI remains locked in a range with no sign of an imminent breakout. A 13 week cycle up phase is flat and is ideally due to last xxxx xx xxxxx (in subscriber version). There’s no sign that longer cycles will xxxx xx xxxxx (in subscriber version).  A 10-12 month cycle high is ideally due between xxxx xx xxxxx.  If there’s no upside breakout before that, the rest of the year would set up xxxx xx xxxxx.  On the long term weekly chart HUI is holding precariously at the 6 month cycle MA. xxxx xx xxxxx are the parameters to watch this week for signs of big trouble.

On the ultra long term monthly chart HUI remains entrenched in a 16 month downtrend. Ultra long term momentum remains precariously neutral. If HUI ends December below xxxx (in subscriber version) the target could be xxxx–xxxx in the first quarter of 2022. Even if above xxxx, it would still face major resistance in the xxxx range. It would need to break that to end the downtrend.

Chart Picks – Two weeks ago, we added 3 picks to the list, and they’ve done ok as shown in the table below.

Today, there were 4 buys and 31 sells from the swing trade screens of 52 gold mining stocks from Monday’s action. The rest had no signal. The big edge to the sell side isn’t a good sign. Even the 4 charts with buy signals weren’t inspiring. So I added no new picks.

Because of the weakness in the screening data and the fact that most stocks remain in longer term downtrends. I’ve added tight stops to the existing picks.

Picks closed out over in November-December had an average gain of 10% on an average holding period of  46 calendar days.

See table and charts (subscriber version).

Subscribers, click here to download the report.

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.

Subscription Plans

Try Lee Adler’s Gold Trader risk free for 90 days!

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Wheels Are Moving in Slow Motion for the Top

Lee Adler

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The debt limit has been raised. The Treasury has flooded the market with supply, and will continue to do so for another month or two. But there’s been no disaster in the market. The Fed’s RRP slush fund, designed to absorb the flood of supply, has even grown, thanks to year end window dressing.

Even after that window is undressed this week, there will still be around $1.6 trillion in that fund to start. That is overnight liquid money that holders will use to buy new Treasury issuance. The RRPs will gradually be drawn down. But there’s enough there to absorb the ongoing supply bulge that the government needs to issue to rebuild its cash and repay the internal accounts it raided while the debt limit was in place.

We don’t know exactly how much more the government needs to get its internal accounts back to normal, but it could achieve that purpose very quickly given the availability of the RRP fund. It holds more than enough cash to fund that issuance.

That RRP fund, with it’s baseline starting point of approximately $1.6 trillion also gives the Fed cover to wind down QE to zero in March. The Fed will cut QE, and everything will look hunky dory. Wall Street will conclude that “tapering” QE was no big deal. Market complacency will be thick. Get out your carving knives.

Once the Fed has cut QE to zero, and RRP holders decide that they will spend no more to support the market, is that when the crisis begins?  No, not immediately.

First, there will be the annual tax windfall that occurs in March and April, when corporate and individual income taxes for the preceding year come in. The Treasury always uses that cash to temporarily pay down outstanding debt. The holders of that debt get money back. They use that cash to buy longer term paper, and in some cases to buy stocks. So we get a seasonal rally every year in March and April.

But in late May, the Treasury starts net borrowing again. Then we watch. We watch to see how that RRP fund is doing. Once it turns flat, and there’s no more QE, and the seasonal tax windfall cash has been spent, that’s when the trouble starts in the market.

Sell in May and go away? This report tells you why that might be a good idea. The report shows what to expect for both stocks and bonds, along with the why’s and wherefores, likely timing, to give you a clear grasp on on a strategy and tactics that might make sense for you.  Get the full story in the subscriber version.

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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It’s The Most Blunderful Time of the Year

Lee Adler

Technical Trader subscribers click here to download the complete report.

In the last episode of how the trading cookie crumbles before the pre-holiday break, I asked the age old question, “Is it time to quit if your chart picks crushed the market?” The answer, of course, is, “Yes.” But I did not heed. I took the time off nearly fully short, with no stops on new picks, and now must find the best way to extricate from these trades and minimize the losses that wiped out a good part of the previous month’s gains.

Prior to Christmas, the previous Friday’s screens had 24 buys and 72 sells. So I went into the holiday period overconfident that I’d be sitting pretty with all shorts.

In the Christmas week, which I took off, the last screen before the holiday had 67 buys and 16 sells.

That should have been the takeout signal for the shorts. Unfortunately, I was enjoying a little vacation, and working on my French long term stay visa application. In other words, asleep at the switch.

So now the question is, given where these picks now stand on their charts, what’s the best course of action. This Friday’s screens had 16 buys and 34 sells.

After reviewing the charts, I decided that rather than bail immediately on the shorts, I want to give them just a tad more rope, because there seems to be some potential for a pullback. At the same time, I want to set my stops at a level where it would be appropriate to abandon hope, all ye fools who enter there. So the list now has tight stops on all picks.

The charts of the current screen output are mostly trendless, jiggly, and muddy. I saw nothing compelling either as a buy or a short, so I’m adding nothing to the list this week.

The list now has 8 open picks, ending the week with an average loss of 0.8% on an average holding period of 29 calendar days. That wiped out a gain of 5.8% on an average holding period of 22 calendar 2 weeks earlier.

The table and charts of open and new picks are below (subscriber version only).

Table (subscriber version only)

Charts (subscriber version only)

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. 

Subscription Plans

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