Red Channels and More Sell Signals 3/19/21

[DrStool]

There are red channels on the hourly charts of the ES fucutures. Are they going lower this morning? Doubtful. 2-3 day cycle projection 3895 is only a hair below levels they've reached so far. 5 day cycle projection of 3900 was done. 

But they need to clear 3920 to be out of the woods. Otherwise should get into at least the 3880s later today. 

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Fasten Your Seatbelts While We Wait for the Fed Rescue 3/17/21

Fed and US Treasury Are Ensuring that Macro Liquidity Stays Bullish  LEE ADLER 1 - LIQUIDITY TRADER MARCH 16, 2021

Rally Is Set to Accelerate if These Benchmarks Trigger  

Treasury’s Bond Market Rescue – Get Ready For the PONT Spread Bulge 

Hints of Gold Bottom

Time for a Stock Market Six Month Cycle Low

Infinite QE Is Coming Despite Skyrocketing Economic Growth

Here’s The Evidence That The US Treasury is Bailing Out Stricken Primary Dealers

 

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

 

[DrStool]

The bond market crash is taking a breather this morning. The 10 year yield is "holding" at 1.696, off its high of 1.754 yesterday. The projection for the current move is now 2.16. After that, only Jaysus knows, and Jaysus isn't saying yet. 

I'm agnostic on whether they get that high on this move. As moves go parabolic like this, the end move projections can exaggerate the target.

In this case, it depends on Lord Jaysus. What Jaysus says is one thing. It's what he does and when he does it that will have the real impact. Bond market penitents anxiously await his Third Coming. 

I repeat the theme. The Fed has no choice but to resort to yield control, which means QE infinity. Infinity in this case means mostly in terms of quantity, but also for a very long time. I get into the nitty gritty of what's happening and what's likely to come next in the Liquidity Trader Money Trends reports. 

Again, the issue is not inflation. The issue is not economic recovery. The issue is not rising yields. The issue is not interest rates. These are all second order effects, or wholly tangential. 

The issue is falling bond prices due to SUPPLY.  Treasury supply, with a heaping of corporate issuance piled on for good measure. 

The issue is also that inherent demand is insufficient to keep market prices stable in the face of this torrent of supply. So bond prices fall relentlessly. This is true even with the Fed directly buying or indirectly funding 85-88% of new issuance since last August. Bond prices have consistently and relentlessly fallen since then.

What changed was that prior to August, since March, the Fed had been funding MORE than 100% of new issuance. 

It's mind boggling. The market only needs to absorb 15% of new issuance because the Fed is taking care of the rest. But it can't do it.

Ultimately, it comes down to the fact that the Primary Dealers, the criminal syndicate that the Fed appoints to run the Treasury market, accumulated massive inventories around the highs in price. They did so by borrowing 90% of the purchase prices with repo. All of that is now under water. 

Yes, their inventories are hedged in the futures market, but it's not a perfect hedge. If it was, they'd be net short and making money. They are not. They remain net long to the tune of many billions. They're getting crushed.

That's why the US Treasury has stepped in recently to try and stop the hemorrhaging. Yesterday the Treasury announced more paydowns of T-bills to stuff money back into the pockets of the dealers, banks, and money market funds that hold the expiring bills. The Treasury will add $5 billion back to the market on Tuesday, and $26 billion on Thursday with these paydowns.

It's no coincidence that the $26 billion in T-bill paydowns on Thursday exactly equal the Treasury's $26 billion in new long term paper issuance on Friday. They desperately want to avoid resorting to yield control and infinite QE. The Fed and Treasury are praying that the holders of the expiring paper take that money they get back, and buy further out on the curve to push bond prices back up.

The Treasury started doing this massive pseudo QE on Februrary 23. Each week the Treasury has pumped $50-90 billion into the market with these paydowns of expiring T-bills. But the gambit is not working. At least it's not working well enough to make a material difference.

So we are faced with the fact that the dealers' bond inventories acquired ever since March of last year are getting ever deeper under water. As trading inventory, the dealers are required to mark to market in real time. The losses are real. Their lenders want more collateral because of that. This causes forced selling. That's all this is. You need not read any more into it than that. 

Even if they're selling out of it as they go, they are still taking losses on anything acquired through yesterday. No doubt they are getting out. Their bank lender wise guy buddies are giving them no choice. 

Meanwhile, the Fed sits on the sideline in shock, hoping against hope they need not take emergency action yet again. Jaysus says, "Remain calm, all is well," while knowing that all is NOT well. In fact, it's terrible. 

That's where this Treasury ploy of paying down mass quantities of T-bills comes in. It has been a last ditch attempt to avoid the inevitable infinite, unlimited Fed QE that will be necessary to stabilize the bond market.  

I illustrate the problem with my newly updated chart of the TLT, the 20 year Treasury bond ETF. This will make it easy to understand just where this is headed.

Click to engorge. 

The bonds have lost 22% of their value since last July when the Fed cut back QE to "just" 85% of new issuance. They have lost 15% since bond prices broke down from the top on January 6. Meanwhile, the Primary Dealers acquired their inventories with no more than 10% equity. To quote the guys at South Park. "AND IT'S GONE!" 

At the peak of the crisis, from March through July, the Fed had been absorbing more than 100% of new Treasury issuance, plus a little more. The Fed was giving their dealer strawmen plenty of slosh to play with in stocks. That stopped in July. The Fed thought that the market had recovered enough to handle the Treasury issuance on its own.

The Fed was wrong. What else is new? The market showed them immediately that they were wrong by simultaneously topping out and immediately heading lower in price, of course reflected in higher yields. 

And they're just waking up to this in recent weeks. Meanwhile, we've been all over it since the turn started. Why didn't the policy makers address the problem then? Too many clueless eCon Phd's and not enough common sense, I suppose. 

The Fed's history of long term serial blunders goes on. Each policy blunder requires an ever bigger rescue, which in turn merely compounds the problem. How do we exit this spiral without reaching a catastrophic criticality? 

We probably don't, but there's a slight possibility that they could get lucky. I chronicle the attempt to thread that needle in the Liquidity Trader Money Trends reports. 

[DrStool]

Here is my stock screen spitout for today. These are not recommendations.  I figure you stoolies know enough that you can look at some of these on your own charts and do with them what you will. I will pick a few to add to my ready list for my trading today.  

I also use these lists, particularly the weekend run, for my chart picks in the weekly Technical Trader reports. After running the screen, I eyeball the charts for the best risk/ reward setups for swing trades.  Then I put them on the chart pick list with close out trigger formulas and track them every week from their opening to their dump off point. 

Today's raw screen output has 7 buys and 49 sells. That's more than yesterday's 3 buys and 24 sells. However, 5 of the 7 buy signals were inverse ETFs. Therefore, 54 of the 56 signals were bearish. It's enough to suggest downside continuation, but not enough to suggest widespread downside thrust that would result in an extended decline. 

Symbol	Buy	Sell	500	200	125	50
DMTK.O	1	0	0	0	0	1
DUST.K	1	0	0	0	1	1
PPL	1	0	0	0	1	0
PSQ	1	0	0	0	0	1
SQQQ.O	1	0	0	0	0	1
KOLD.K	1	0	0	0	1	0
QID	1	0	0	0	0	1
TWOU.O	0	1	0	0	1	0
AEM	0	1	1	0	0	0
LNT.O	0	1	0	1	0	0
AAPL.O	0	1	0	0	1	0
APTV.K	0	1	0	0	0	1
AZN.O	0	1	1	0	0	0
AYRO.O	0	1	1	0	0	0
ELY	0	1	0	0	0	1
CVNA.K	0	1	0	0	0	1
CDAY.K	0	1	0	1	0	0
CHTR.O	0	1	0	0	1	0
CTXS.O	0	1	0	1	0	1
CLX	0	1	0	0	0	1
KO	0	1	0	0	1	0
APPS.O	0	1	0	0	0	1
NUGT.K	0	1	0	0	0	1
QYLD.O	0	1	0	0	0	1
HUN	0	1	0	0	0	1
NTLA.O	0	1	0	0	0	1
INTU.O	0	1	0	0	0	1
TAN	0	1	0	0	1	0
NVTA.K	0	1	0	1	0	0
SHYG.K	0	1	0	0	0	1
HYG	0	1	0	0	1	0
IVW	0	1	0	0	0	1
JAN.O	0	1	0	0	0	1
KLAC.O	0	1	0	0	0	1
MSFT.O	0	1	0	0	0	1
NEM	0	1	0	0	1	0
NEE	0	1	0	1	0	0
OCUL.O	0	1	0	0	0	1
OSTK.O	0	1	0	1	0	0
PBRa	0	1	0	1	0	0
PNW	0	1	0	0	1	0
PBI	0	1	0	0	0	1
PLUG.O	0	1	0	0	1	0
SMAR.K	0	1	0	0	1	0
SEDG.O	0	1	0	0	1	0
SJNK.K	0	1	0	0	0	1
JNK	0	1	0	0	1	0
SPYG.K	0	1	0	0	0	1
TMUS.O	0	1	0	0	1	0
XLK	0	1	0	0	0	1
TBIO.O	0	1	0	0	1	1
ANGL.O	0	1	0	0	1	0
VUG	0	1	0	0	0	1
WIT	0	1	0	0	0	1
HYLB.K	0	1	0	0	1	0
ZTO	0	1	0	1	0	0
Totals	7	49

 

Here's a sample chart of one of the sell signals, AAPL, a new hot stock that no one has ever heard of and isn't widely held by institutions.* This is not a recommendation. In fact, it's trading just above the cycle line that roughly corresponds with a 200 day MA. If it's headed for a breakdown, there should be some bouncing around first. In the short run, that might mean 3-6 points of downside. 

Click to view full size. 

 

If you'd like to follow the weekly chart picks that I select from these screens, click here.  

* Snark

 

[Jorma]

1 hour ago, DrStool said:

The bond market crash is taking a breather this morning. The 10 year yield is "holding" at 1.696, off its high of 1.754 yesterday. The projection for the current move is now 2.16. After that, only Jaysus knows, and Jaysus isn't saying yet. 

 

Some sort of perturbance in the flux  at 9AM sharp. on my feed, had a spike to 1.73

[DrStool]

This is so bad. If it breaks out above 1.75 I suspect that shit will fly all over everything. 

[potatohead]

2 hours ago, DrStool said:

The bond market crash is taking a breather this morning. The 10 year yield is "holding" at 1.696, off its high of 1.754 yesterday. The projection for the current move is now 2.16. After that, only Jaysus knows, and Jaysus isn't saying yet. 

I'm agnostic on whether they get that high on this move. As moves go parabolic like this, the end move projections can exaggerate the target.

In this case, it depends on Lord Jaysus. What Jaysus says is one thing. It's what he does and when he does it that will have the real impact. Bond market penitents anxiously await his Third Coming. 

I repeat the theme. The Fed has no choice but to resort to yield control, which means QE infinity. Infinity in this case means mostly in terms of quantity, but also for a very long time. I get into the nitty gritty of what's happening and what's likely to come next in the Liquidity Trader Money Trends reports. 

Again, the issue is not inflation. The issue is not economic recovery. The issue is not rising yields. The issue is not interest rates. These are all second order effects, or wholly tangential. 

The issue is falling bond prices due to SUPPLY.  Treasury supply, with a heaping of corporate issuance piled on for good measure. 

The issue is also that inherent demand is insufficient to keep market prices stable in the face of this torrent of supply. So bond prices fall relentlessly. This is true even with the Fed directly buying or indirectly funding 85-88% of new issuance since last August. Bond prices have consistently and relentlessly fallen since then.

What changed was that prior to August, since March, the Fed had been funding MORE than 100% of new issuance. 

It's mind boggling. The market only needs to absorb 15% of new issuance because the Fed is taking care of the rest. But it can't do it.

Ultimately, it comes down to the fact that the Primary Dealers, the criminal syndicate that the Fed appoints to run the Treasury market, accumulated massive inventories around the highs in price. They did so by borrowing 90% of the purchase prices with repo. All of that is now under water. 

Yes, their inventories are hedged in the futures market, but it's not a perfect hedge. If it was, they'd be net short and making money. They are not. They remain net long to the tune of many billions. They're getting crushed.

That's why the US Treasury has stepped in recently to try and stop the hemorrhaging. Yesterday the Treasury announced more paydowns of T-bills to stuff money back into the pockets of the dealers, banks, and money market funds that hold the expiring bills. The Treasury will add $5 billion back to the market on Tuesday, and $26 billion on Thursday with these paydowns.

It's no coincidence that the $26 billion in T-bill paydowns on Thursday exactly equal the Treasury's $26 billion in new long term paper issuance on Friday. They desperately want to avoid resorting to yield control and infinite QE. The Fed and Treasury are praying that the holders of the expiring paper take that money they get back, and buy further out on the curve to push bond prices back up.

The Treasury started doing this massive pseudo QE on Februrary 23. Each week the Treasury has pumped $50-90 billion into the market with these paydowns of expiring T-bills. But the gambit is not working. At least it's not working well enough to make a material difference.

So we are faced with the fact that the dealers' bond inventories acquired ever since March of last year are getting ever deeper under water. As trading inventory, the dealers are required to mark to market in real time. The losses are real. Their lenders want more collateral because of that. This causes forced selling. That's all this is. You need not read any more into it than that. 

Even if they're selling out of it as they go, they are still taking losses on anything acquired through yesterday. No doubt they are getting out. Their bank lender wise guy buddies are giving them no choice. 

Meanwhile, the Fed sits on the sideline in shock, hoping against hope they need not take emergency action yet again. Jaysus says, "Remain calm, all is well," while knowing that all is NOT well. In fact, it's terrible. 

That's where this Treasury ploy of paying down mass quantities of T-bills comes in. It has been a last ditch attempt to avoid the inevitable infinite, unlimited Fed QE that will be necessary to stabilize the bond market.  

I illustrate the problem with my newly updated chart of the TLT, the 20 year Treasury bond ETF. This will make it easy to understand just where this is headed.

Click to engorge. 

The bonds have lost 22% of their value since last July when the Fed cut back QE to "just" 85% of new issuance. They have lost 15% since bond prices broke down from the top on January 6. Meanwhile, the Primary Dealers acquired their inventories with no more than 10% equity. To quote the guys at South Park. "AND IT'S GONE!" 

At the peak of the crisis, from March through July, the Fed had been absorbing more than 100% of new Treasury issuance, plus a little more. The Fed was giving their dealer strawmen plenty of slosh to play with in stocks. That stopped in July. The Fed thought that the market had recovered enough to handle the Treasury issuance on its own.

The Fed was wrong. What else is new? The market showed them immediately that they were wrong by simultaneously topping out and immediately heading lower in price, of course reflected in higher yields. 

And they're just waking up to this in recent weeks. Meanwhile, we've been all over it since the turn started. Why didn't the policy makers address the problem then? Too many clueless eCon Phd's and not enough common sense, I suppose. 

The Fed's history of long term serial blunders goes on. Each policy blunder requires an ever bigger rescue, which in turn merely compounds the problem. How do we exit this spiral without reaching a catastrophic criticality? 

We probably don't, but there's a slight possibility that they could get lucky. I chronicle the attempt to thread that needle in the Liquidity Trader Money Trends reports. 

OF all the the so called experts out there.....no one has said it any better than you. Great summary of what is unfolding. What is your take on the banks capital and liquidity position if a bond crisis unfolds? Would yield curve control reverse this bear steepening curve and impact bank earnings?

[potatohead]

Lee has struck gold and zeroed in on the problem.....

 

Jerome Powell just had an op ed piece in the Wall Street Journal. 

https://www.wsj.com/articles/jerome-powell-on-the-pandemic-year-tools-to-avoid-a-meltdown-and-save-livelihoods-11616162472?page=1

Jerome Powell on the Pandemic Year: Tools to Avoid a Meltdown and Save Livelihoods

[DrStool]

I don't know about the impact bank earnings. Overall, bank capital has been shrinking fast since the onset of the pandemic panic in March of last year. I don't know where it becomes critical. My focus is on the Primary Dealers. Some of them are losing a lot of money and my bet would be that they are insolvent without the Fed. 

It doesn't seem to be going well for the banks though. LOL 

Ratio of bank capital to total liabilities- mostly deposits, is near 10% and below the level at the bottom of the GFing Crisis. So I'd say it's bad, getting worse, and will force the Fed to act, because the Primary Dealers are in far worse shape than the banking industry as a whole. 

[DrStool]

7 minutes ago, potatohead said:

Lee has struck gold and zeroed in on the problem.....

 

Jerome Powell just had an op ed piece in the Wall Street Journal. 

https://www.wsj.com/articles/jerome-powell-on-the-pandemic-year-tools-to-avoid-a-meltdown-and-save-livelihoods-11616162472?page=1

Jerome Powell on the Pandemic Year: Tools to Avoid a Meltdown and Save Livelihoods

What Jaysus said must be important because they put it behind a paywall. I do not give Rupert Murdoch my money. You can post a key snippet for dicsuction here and it would be fair use. 

[potatohead]

This will make you throw up!!!!!

"In late February 2020, I attended an overseas meeting of the G-20 nations’ finance ministers and central bank governors. At the time, the U.S. was enjoying its longest economic expansion on record, and though my Fed colleagues and I had been monitoring Covid-19, we did not yet see it as likely to have a major impact at home. But that weekend, it became clear that the virus was spreading quickly—and widely. I left with the conviction that its effect would not be confined to faraway lands, as I had thought, but would reach every part of the globe.

One week later, the Fed held an emergency policy meeting with one item on the agenda: How could we help people get through what was going to be a terribly difficult time?"

[DrStool]

Zooming in to the past 15 months.  This is through March 3. 

[potatohead]

1 minute ago, DrStool said:

Zooming in to the past 15 months.  This is through March 3. 

I keep hearing that banks don't want any more deposits because they have no where to put the cash. Any truth to this in you opinion? With Tbill paydowns, short term debt is getting more expensive thus negative yields earlier this week.

[DrStool]

4 minutes ago, potatohead said:

This will make you throw up!!!!!

 

One week later, the Fed held an emergency policy meeting with one item on the agenda: How could we help people get through what was going to be a terribly difficult time?"

Yeah. He's full of shit. But that's their job, and that's why most Fed chairs are psychopaths.

I exclude Yellen from that. Nobody gets her heroism. It failed but she was the only Fed chair since Volcker to try to steer the Fed in the right direction. I give her full credit. No one else does. I do.

She started shrinking the balance sheet. It brought the pressure on the bond market and Jaysus puked. There's no way in hell they ever would have seen that balance sheet shrinkage through to its logical conclusion. A massive housecleaning that would have cleansed and reset the system. 

[DrStool]

Just now, potatohead said:

I keep hearing that banks don't want any more deposits because they have no where to put the cash. Any truth to this in you opinion? With Tbill paydowns, short term debt is getting more expensive thus negative yields earlier this week.

I don't understand what you mean by short term debt getting more expensive. For the lenders, yes.  They get no return from it. Depositors get no interest on their deposits. But borrowers get money for nothing and chicks for free. 

How can they reject deposits when the Fed and Treasury keep creating them? Their only recourse is negative rates. Start charging depositors higher fees. 

[potatohead]

2 minutes ago, DrStool said:

I don't understand what you mean by short term debt getting more expensive. For the lenders, yes.  They get no return from it. Depositors get no interest on their deposits. But borrowers get money for nothing and chicks for free. 

How can they reject deposits when the Fed and Treasury keep creating them? Their only recourse is negative rates. Start charging depositors higher fees. 

makes sense that short term rates go negative. Fed will then do RRP to counter this. Fed and treasury begin to play a game of cat and mouse hoping that more money moves to the longer end of the curve as you discussed. This is where it gets interesting. At what point does confidence change and investors realize the game of yield curve control is playing out before them. My take is that investors go to hard assets to protect purchasing power.