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The Passion of Jaysus

Lee Adler

Jay Powell’s first order of business is to keep the bond market from breaking down. When the 10 year yield hit 0.975 last week before backing off, the market was at the edge of the abyss. Leveraged dealer bond portfolios were on the brink of disaster.

Signs of a weakening non-recovery rescued them. Traders sold stocks, which freed up enough cash at the margin to bring bonds back from the brink.

Because of that, the Fed is ok with the weaker economy narrative for the time being.

Jaysus saves the bond market first. Stocks are just the saints of this religion. They get their share of worship. But the bond market is the Cross, the Torah, and the Koran all rolled into one. It is the focus of the worshippers. It is the altar upon which the really big money acolytes pray.

So the Fed looks at signs of weakness with relief now, because it sends the big donors in the pews. And the small part of the collection plate that the Fed doesn’t fill, those donors keep filling. And Jaysus keeps saving. Or so it appears.

But this seeming miracle is an Act that won’t work for long. Because if too many worshippers reject the saints of stocks, Jaysus himself runs a similar risk. If the flock loses faith in Him, the Church of the Fed will collapse. The bulls will all die and burn in the fires of financial market hell.

As for the bears, it’s too late. They’re so dead, they’re beyond resurrection. Nobody is short the market.

In the end, only liquidity matters. The Fed can create liquidity, but an economic narrative that leads to selling of any asset class can destroy that liquidity just as fast, or faster, than the Fed creates it.

So for that purpose we keep an eye on a few real time economic indicators that few others are watching, to keep us abreast of how the Wall Street economic narrative is going to play.

We’ve known for a couple of months that the “recovery” was a non-recovery. The Wall Street mainstream is starting to catch up with that.

This report updates us on what’s happening now in Federal tax collections, and therefore what the narrative is likely to sound like in the weeks ahead. It prepares us to be ready to act ahead of the most likely scenarios in the financial markets.

Here’s the bottom line.

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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!

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Gold Shaky but Still OK

Lee Adler

The good news is that the 9-12 month cycle projection no longer points toward 1700. The outlook will remain bullish if certain things happen this week and next.

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Another Liquidity Indicator Shows Stocks Being Oversold – Wait, What?

Lee Adler

Yesterday we looked at the overview of the CLI and the issue of new and secondary stock offerings. The CLI is still bullish. And the supply of new stock issues has not been sufficient to absorb enough of the demand to stop the advance of stock prices, although it has probably contributed to slowing the rise. Likewise, new corporate debt issuance, while massive, hasn’t been sufficient to pull enough of the demand for securities to cause a reversal of the rise in stock prices.

In this Part 2 of the report, I cover the remaining interesting and important indicators that comprise the CLI. Each has its own story to tell, but they all lead to the same conclusion. Still bullish, and, unbelievably, one key component says that the stock market is oversold.

I find it difficult to wrap my head around that. But I won’t argue with it. If there’s one thing I’ve learned in 53 years of watching markets virtually every day, it’s not to argue with impartial indicators. They don’t care what I think should happen. They just show what is happening.

So here we are. The Fed is creating enormous amounts of excess liquidity, “liquidity” being a fancy word for “money.” I use the words interchangeably.

The Fed is creating that excess by pumping money directly into the markets via its POMO operations—buying bonds from Primary Dealers and paying for them by crediting the dealers’ accounts at the Fed with newly imagined money. That leads to secondary effects of increasing money in the system via credit growth, particularly increasing margin credit that results from rising securities prices.

This works, and will continue to work, for as long as the players have enough confidence in the game to keep buying. This keep pushing prices higher, increasing the value of collateral. That, in turn, allows for and promotes ever more credit creation. It’s the quintessential nature of bubble finance. Circular, and more. Always more.

There are those who say that this isn’t sustainable. There are also those who say that an expanding universe isn’t sustainable, that it will collapse in on itself.

In a few trillion years.

I’m agnostic about whether this must finally end in collapse within the foreseeable future. I assume that it will, but I sure as hell don’t know when. So I’ll just operate in the here and now, and respect the trend. We’ll always be alert for signs of change, but at the same time, never forgetting Rules Number One and Number Two.

Don’t fight the Fed.

The trend is your friend.

Meanwhile, as Yogi said, you can observe a lot by watching. I’m confident that by always being vigilant, and open to anything, we’ll be ready just in time to take advantage of, or at least protect ourselves from, whatever is to come.

Now to the indicators.

The facts, figures, and outlook are reserved for subscribers. Click here to download the report.

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Not Just Liquidity, Why I Can’t Be Bearish Technically

Lee Adler

Cyclically, there’s no reason to get bearish here. Cycles of up to 6 months duration remain in gear to the upside. A 4 week cycle high is due now, but it won’t matter if the 6-8 week cycle is dominant. Here are the price targets and theoretical timing of these expected moves.

Technical Trader subscribers, click here to download the report.

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Composite Liquidity Indicator (CLI) – Shows Stocks As Oversold

Lee Adler

Are You Kidding Me?

Can this be right? Did the stock market become oversold in mid October versus Composite Liquidity. This chart said that it did. And even after this huge 2 week rally, it’s still much closer to oversold than overbought. The S&P 500 is still near the bottom of the liquidity band.

It’s very similar to a look it had in July 2011. That preceded 4 years of a relentless, virtually unbroken bullish string.

What should cause us to expect change?

The facts, figures, and outlook are reserved for subscribers. Click here to download the report.

This is Part 1 of a 2 part report. Part 2 will be published later today.

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TBAC Magic 8 Ball Cloudy

Lee Adler

In the second month of each calendar quarter the US Treasury gets together with a shadowy group called the TBAC, which stands for Treasury Borrowing Committee of the Securities Industry and Financial Markets Association.

The Treasury tells the TBAC how much money it will need to borrow to pay its bills for the rest of the current quarter and the subsequent quarter. The TBAC tells the Treasury how to schedule it. In other words, it sets out the type of issuance and the timing for the rest of the quarter and the next one.

In case you’re wondering, here are the current TBAC members. They change from time to time.

I just note that the Vice Chair is good old Brian Sack, who ran the NY Fed trading desk for several years. He was the guy who was in charge of executing the Fed’s trades with Primary Dealers in implementing QE. Now he’s making the big bucks on Wall Street as a “global eConomist.”

How would you like to be the firm that snagged him and his insider connections at the Fed? I wonder what that cost them.

But I digress.

The TBAC’s quarterly borrowing schedules are central to us because they tell us the schedule of expected new Treasury debt issuance (supply), months in advance. In the good old days, before pandemics and debt ceiling crises, that was extremely useful information to have because the Treasury rarely digressed from the TBAC schedule.

That has changed during the last couple years of the Trump Regime, because the mechanism for being able to reasonably forecast the Treasury’s borrowing needs broke down. First, they broke down because the Regime wanted to manipulate Congress by using the Federal Budget as a cudgel. Then things got worse when the pandemic came.

Last week the TBAC issued its revised estimates for the current quarter, and its first stab at Q1 2021.

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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Gold Back in the Woods

Lee Adler

We aren’t out of the woods. There are signs that the 9-12 month cycle down phase could be much worse than I originally had hoped. This includes a new downside cycle projection that won’t make you happy, unless you want to accumulate at lower prices.

Subscribers, click here to download report.

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Stock Market Biden Time for the Bulls

Lee Adler

Short term cycles turned up on schedule, triggering the overdue upturn in the 6 month cycle. The 13 week cycle up phase got its expected second wind. All cycles from 4 weeks to 6 months are now in gear to the upside. The 4 week cycle currently projects to 3560. The 13 week cycle points higher–a lot higher.

Chart pick performance was strong last week. The average gain grew from +2.5% to +5.0% while the average holding period fell from 14 calendar days to just 8, or barely over a week. Our shorts got stopped out early, protecting a small net gain on those, on balance. Meanwhile the long picks were able to take advantage of the market surge.

I am adding 6 picks to the list as of Monday including 3 new longs and 3 new shorts. I am closing out one pick. With these changes, that will leave 10 open picks, 7 longs and 3 shorts.

Technical Trader subscribers, click here to download the report.

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Wouldn’t it be nice to be able to generate a 5% gain every 8 days? Obviously, that’s not going to happen. But the plus signs are nice. Of course, we’d like to beat buy and hold, too.

A long/short trading strategy won’t do that in a broad, sharp rally like last week’s. That’s because we always have at least a few shorts. That costs us when we have a straight up week in the market. If we consider the last 8 calendar days as a basis for comparing performance, we were about 1 percentage point below a buy and hold SPY strategy.

But always having a few shorts means that we should outperform rangebound and down markets. My technical stock screens will generate lots of shorts when the market is trending down, and hopefully my eyes will recognize the best ones from that group. The goal is that when the market trends down (someday), the chart pick list should not just massively outperform a buy and hold market strategy, not just by losing less. It should be positive on balance.

Another goal I have for these weekly chart picks is for it to be easy to follow. Once a week entries obviously aren’t optimal from a market performance standpoint. But for busy people, it’s a good alternative. We generally have a few picks each weekend that we can enter on Monday morning. Then, setting trailing stops frees us from the trading screen. We can go about having a life!

But I don’t like automatic stops. What about the use of mental stops? I usually put stop levels on the chart pick table. I set an alert to be sent to my phone and computer screen at the stop level. When I’m actively trading my own account, I use a chart trendline or moving average representing my trailing stop line. When I get that alert, I get on that chart quickly. I wait that 2-3 minutes, and if there’s no reversal, I trigger the trade and move on.

Again, this is just my way. I’m sharing it with you for informational purposes. You have to do it your way. I just try to give you useful, actionable, and hopefully profitable, information for you to use as you see fit. If you are not an experienced trader, consult a professional investment advisor for guidance. That’s not what this is.

Past performance doesn’t indicate future results. There’s always risk of loss. Chart picks are theoretical for informational purposes only.

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Real Time Tax Collection Data Supports Jobs Report

Lee Adler

Tax collections improved in October, but are still well below pre-pandemic levels. The US may look like it’s recovering, but it’s still in the hole it dug when Covid19 first hit. That means that Fed policy isn’t likely to change any time soon.

And it also means that we should expect a stimulus package of some kind, at some point. With the uncertainties surrounding a divided government regardless of whether a new Administration takes over, guessing how much stimulus there will be, and its timing, is a fool’s errand. The one thing that we do know is that whenever it comes, the bigger it is, the more bearish it will be.

And if they spend the $1.7 trillion on hand mostly to pay down debt, that would be very bullish.

Meanwhile, economic data is useful for guessing what Fed policy will be, and under normal circumstances might be useful for making an educated guess about fiscal policy. It’s not possible to translate this data directly into an expected market outcome. It always comes down to measuring the strength and persistence of the trend through technical analysis, and more direct liquidity inputs, such as the PONTs. That’s essentially the difference between the quantity of Fed QE versus the amount of new Treasury issuance.

This data gives us an outline of where the economy really stands, and what it means for the outlook for stocks and bonds.

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!

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Signs of a Gold Bottom

Lee Adler

There were some positive signs for gold last week and they are coming at just the right time.

Subscribers, click here to download report.

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

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