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So Full of Surprises 10/20/20

This is a syndicated repost courtesy of Stool Pigeons Wire at Capitalstool.com. To view original, click here. Reposted with permission.

About 85% of the mass in the universe and 25% of its mass-energy is made up of dark matter. Dark energy is thought to account for 68% of the universe’s energy.  NASA says, “More is unknown than is known. We know how much dark energy there is because we know how it affects the universe’s expansion. Other than that, it is a complete mystery.”

The stock market is like that. We can see the forces driving some of it. We can understand how they work. But there are unseen forces that we don’t understand. But we know they exist because we can see their effects through Technical Analysis.

We saw the effect of Dark Energy yesterday. The market is no longer perpetually extending into the outer reaches of space, driven by Fed energy.

Something is holding it back.

I think I know what it is. I’ve been talking about it for months. Corporate supply. For me at least, it’s very difficult to measure. Some organizations track and report gross issuance soon before  and after the fact, but no one that I know of tells in real time the amount of net issuance that’s on the way or has just hit. It’s that net new supply, not the paper being rolled over, that sucks up the market’s energy.

The Fed is taking care of Treasury supply. We know that. But the market must also absorb wave after wave of supply of both net new debt and equity, that corporations are creating and selling. The old buyback fraud is dead. Corporations have seen their revenues cut. Many can’t fund their self theft through their revenues any longer. So they cut the remaining pie into smaller pieces and sell it to the public. Mostly the institutional public.

They don’t have the money to absorb all of it at these high prices. They must sell something else to raise the cash to buy the new stuff.

So we get days like yesterday. We see only effect. We know that dark energy is behind it. And we use TA to observe the effect, and forecast the trend.

Here’s what’s up for today.

The market has tried to set a bottom, but it faces a huge resistance obstacle around 3340-45. What comes next depends on what happens there. If they rollover, at most that sets up a trading range of 3405-3440. It should get worse if that zone generates only a weak bounce.

Conversely, if they get through 3440, the next resistance target would be 3460-65, with the potential for more.

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What Selloff? Here We Go Again

Short term cycles have entered down phases. But this looks like a consolidation, not a top.Here’s why and what to do about it.

The chart pick screens are spitting out a ton of interesting patterns. I’m adding 9 picks this week, 7 long and 2 short. 4 picks were stopped out last week and one which was a symbol error was also closed. That will leave 18 open picks, including 14 longs, and 4 shorts.

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Past performance doesn’t indicate future results. There’s always risk of loss. Chart picks are for informational purposes only. These reports are geared toward professional investors and experienced individual traders. Do your own due diligence before trading.

Intervention Attention

The market has the benefit of $115 billion in Fed mid-month QE MBS purchase settlements this week. That would normally be very bullish.

It’s notable that the market has not done more with it. And why not? Still massive Treasury supply along with surging corporate debt and equity issuance is absorbing most QE. There’s not enough left to power an endless bull trend in stocks.

That has been our thesis for the past month or few, and the market seems to be bearing that out. Stocks are stuck in a broad trading range and bonds are weakening.

$83 billion of the MBS settled last Thursday. That helped put $82 billion in Treasury coupon issuance to bed the next day. Whodathunk that the Fed would pump into dealer accounts almost the exact amount that the market needed to absorb the Treasury issuance!

Amazing how that works.

This week’s setup is reserved for subscribers. Risk free trial link below.

Normally this much QE every month would be wildly bullish. But the supply of financial assets has risen to meet the demand driven by QE. We’ve reached stasis – equilibrium, so to speak.

But it is fragile. Bonds are teetering on the brink of an abyss. If they go over, and bond prices fall (yields rise), the system would collapse without another round of massive Fed intervention.

So we need to pay attention. Do bonds go over the cliff? How long would it take the Fed to react if they do? And will it be enough, yet again?

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Wall Street Examiner Disclosure: Lee Adler, The Wall Street Examiner reposts third party content with the permission of the publisher. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler, unless authored by me, under my byline. I curate posts here on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. Some of the content includes the original publisher's promotional messages. No endorsement of such content is either expressed or implied by posting the content. All items published here are matters of information and opinion, and are neither intended as, nor should you construe it as, individual investment advice. Do your own due diligence when considering the offerings of information providers, or considering any investment.

Lee Adler

I’ve been publishing The Wall Street Examiner and its predecessor since October 2000. I also publish LiquidityTrader.com, and was lead analyst for Sure Money Investor, of blessed memory. I developed David Stockman's Contra Corner for Mr. Stockman. I’ve had a wide variety of finance related jobs since 1972, including a stint on Wall Street in both sales, analytical, and trading capacities. Prior to starting the Wall Street Examiner I was a commercial real estate appraiser in Florida for 15 years. I was considered an expert in the analysis of failed properties that ended up in the hands of bank REO divisions, the FDIC, and the RTC. Remember those guys? I also worked in the residential mortgage and real estate businesses in parts of the 1970s and 80s. I have been charting stocks and markets and doing analytical work since I was a teenager. I'm not some Ivory Tower academic, Wall Street guy. My perspective comes from having my boots on the ground and in the trenches, as a real estate broker, mortgage broker, trader, account rep, and analyst. I've watched most of the games these Wall Street wiseguys play from right up close. I know the drill from my 55 years of paying attention. And I'm happy to share that experience with you, right here. 

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