Yves Liquidity Model Says Buy!

I love a debate among guestbloggers.  Tony Ch sees us in a wave C of a deep zigzag that should go towards SP1200.  Yves in contrast now has a buy signal!  His analysis is below the fold. I suppose Yves is the John McCain of this debate - he supports The Surge (albeit his Surge is financial stocks not tech stocks).  Tony Ch must be the Mitt Romney - his version of the Little Big One down means we need some experienced consultant type to manage the economy out of the funk.  Any Ron Pauls out there arguing for a return to Gold to support the Dollar?  Or a Huckabee railing Don't Crucify Us on a Cross of Gold?  Enjoy Yves analysis - his timing model has been pretty good for the past year, albeit sometimes with a lag as long as 55 days from signal.    

        Yves’s Liquidity Index Goes Into Buy Mode!

It would be difficult to not take advantage of the amazing bargains available in today’s equity market.

Time and again events repeat themselves but always with a new twist each time.  The boom to bust cycle is curiously taking on more and more ridiculous proportions.  It guarantees us that the next bust will dwarf the subprime crisis, but hopefully not before this last reflation bubble.

The difficulty that most have in the interpretation of where we are in this cycle comes from the fact that we have had assets on different time horizons.  It is perhaps not usual but most accurate, that observers had pointed to the banking weakness early on. The rest of the market marched on higher until it was untenable.  My index did accurately give us “advanced warning” to buy and sell, and this is the reason we avoided the financial sector all together for most of the year. I suspect that this is a new leg up must include financials as the backbone of the new bull market.  Therefore I have been most bullish on them since early November.  I do believe that this sector has about 3 months lead time as opposed to the general market. I would subsequently not preclude revisiting the lows of this market in the near future for other sectors such as tech or energy.

Receiving a signal from my liquidity index has shown in the past to have a lead time that varies between 2 months (signal from December leading to the March sell off) or by only one week (our current sell signal since October 3^rd) which now moves to a Buy signal as of today.

We are buyers of select themes and will highlight next time our favorite one.

- Yves Lamoureux, Financial Advisor, Blackmont Capital Inc.
Host of the show Lamoureux des Finances, writer and regular media commentator .

 Disclaimer: opinions and projections contained are of the guestblog author and may not represent the views of Yelnick, Blackmont Capital (BCI) or any other organization. The information contained herein is for information purposes only and this report is not to be construed as an offer to buy or sell any securities. Neither Yelnick, BCI nor the author accepts any liability whatsoever for any loss arising from use of this report or its content. The comments and opinions expressed in this letter are the result of work done by Yves Lamoureux. They may differ from the opinion of Blackmont Capital Inc. ("BCI") and should not be considered as representative of BCI, belief, opinion, or recommendations. The statements and statistics contained herein have been prepared by sources we believe to be reliable but we cannot represent that they are complete and accurate. This material is published for general information only. BCI assumes no liability for financial decisions based on this information. Readers should obtain professional advice before applying any ideas mentioned to their own personal situation to ensure their individual circumstances have been properly consideredBCI is an independently owned subsidiary of CI Financial Income Fund. CI Financial is a Canadian owned diversified wealth management firm, publicly traded on the TSX under the symbol CIX.UN.. Blackmont Capital Inc. is a member of CIPF and ID 

Comments

[Wavetrader]

Mr.Ives disses all that is real in technical charting a clear
top is in the charts.One has only to look at the 30 dow stocks
to see most have topped or are making top.How does he see a major rally to 1600 with spit & shine.He must be long and underwater as most are, they didn't see it coming.The most fitting end to the end game.

[Hank]

1-30-08 7:00 PM PST Next: To be announced
Henry Wernicki, expects higher going into the end of the week. (12min)
http://www.elliottfractals.com/marketview_interview.html
Bullish
LISTEN

[mr.silent]

Let us see what the close on Friday brings. Telling day let us see...

[Upstart]

Does anyone see a similarity to 2001?. I've been expecting the final top of at least the bull from 2002 in 2008 because it's a Fibonacci date. I also have a reason I'm looking at July as a target, which would mean a 6-month rally from the January low. The post 9/11 rally ignited after precipitous interest rate cuts and lasted 6 months before failing. Rate cuts now may lead to a similar 6-month rally, followed by vicious decline.

[MT]

I don't know where this move will bring us, but there is a clear pattern visible. Also the bullish reversal (2 long spikes) 01-22 tells us that this is an important bothom wich will hold for a while. The big question is, is the bear party over?

08-16 marks A (3 waves)
10-11 " B (3 waves)
11-26 " a of C (3 waves)
12-11 " b of C (3 waves)
01-22 " c of C (3 waves) end of bear or start of BIG B?

[MT]

A well informed site:

http://www.uclaforecast.com/

[Upstart]

Very helpful: Check out the section on Carl Futia's blog about the New Yorker magazine cover, and other covers and headlines he recently commented on. Negativity at an extreme. January was an important bottom.

[Dan]

I think people are over complicating this.

The patter is a bit clearer when looking at DIA (diamonds). There are two very clear 5-wave impulses down, separated by a 3 - wave corrective up. The most recent 5 wave down looks to have an extended 5th wave.

It's very much normal for an extended 5th wave to be fully retraced by a corrective wave of the next higher trend. The last wave down (on DIA) was from 127.82 to 119.22 on a daily basis.

Today's high on DIA was 127.60 This is very close to a full retrace to 127.82

If this is going to go down from here, it can no longer be a wave 5 (at least, not on DIA) because the pattern would have penetrated into wave 2 of the same level of trend.

So one of two things has to have happened. Either we've hit an important low and what I'm looking at as wave 1 - 2 - (1) of 3 are actually A - B since the Oct high..

Or, the proverbial 3 of 3 is next. If 3 of 3 is next, its most common size will be 1.62 x wave 1. Since wave 1 was roughly 18 points on DIA (ie, 1800 points on the DJIA), the next wave should be around 24 points from the high of 127.6 This would put us near dow 10k before a significant rally develops.

Given that we are in or very near to a recession, I think it would be truly remarkable if the stock market did not fall.

Can anyone point to a recession where the market went up and made new highs? ....

[yelnick]

Dan, nice analysis. We'll see tonight and over the weekend what sense Neely and Prechter make of this - I expect them to say the count-trend rally has ended and the 3 of 3 is about to take us to Dow10k. But I also do not expect them to lay it out as clearly as you have. Well done!

Now, taking your view a step farther, if the recession does not happen this year (due to overseas growth keeping us bouyant if slower growing; I entirely discount the usefulness of the rebate stimulus package), then this might count as an ABC flat off the July high with a 5-3-5 zigzag on the C wave. In which case it has bottomed and after seesawing a bit will take off for the final Surge.

[Sean]

Yelnick,

It is a clear Head and Shoulder breakdown.

It won't be over in just 3 months of corrections.

The target should be the previous bottom of 10,700.

This is a solvency issue, not the past liquidity problem.

[yelnick]

Sean, fair enough. Neely, Prechter, Tony Ch and innumerable others think we are going towards Dow10K. Yet I could counter that the corrective process began in July and is already 6 months old; and other classic H&S patterns have been seen and found wanting, such as the H&S in the S&P from 1997-2003. Very clear look, but it failed to break the neckline. Patterns are indicative but not predictive. My Surge position is that we have one more leg up before all the chickens come home to roost - and they are legion as we have been borrowing against our future big time for a while.

[MHD]

If your surge happens in the face of a Dow Theory sell signal and a black cross, it would be truly against the odds. Nothing is 100% in the markets but those two indicators have some of the best predictive history of anything I've come across.
I'm guessing that some kind of rogue wave is about to hit the USA financial markets, and captain Ben is about to crap in his pants when he sees a 150 foot wave heading towards his ship.
It's going to be interesting to see what happens as far as hyperinflation or deflation. Gold is yelling inflation, and bonds are screaming deflation. And the winner is??????

[Tom CZ]

just FYG again - maybe Prechter sees another fall starting, his EWI Equities Intraday sees we finished 5 - 3 - 5 4th wave with the final 5th already in progress so the view of EWI not so clear for bears (fyg these intraday guys called November bottom perfectly). Personally also bullish, this all the rest of the world except financial US (even within US - S&P earnings growth rate ex financials now around +9% and as I do not expect financials bad conditions to go to the rest of the economy (also because lots of them making money abroad) we should keep alive) ok so do not know why we should see armagedon...

[Upstart]

As many say, "Don't fight the Fed." Why shouldn't the precipitous rate cuts ignite a rally like in 2001? We have the mega-bearishness and bad news of a temporary bottom. The difference this time is that we're still close enough to the old highs that the rally will eke out a new high. This will complete Prechter's B-wave from 2002, which will be counted a-b-c-X-a-b-c (a W-X-Y pattern). Then a relentless C-wave decline to at least 2010, which is a 4-yr. cycle low date. Yes, one more surge for just a few months, like 2001 to early 2002, before it really falls apart.

[dlu]

Upstart, I am on your side and agree with you that new highs will be made.

[joe]

i think all of you guys are making great points yet there is a few things
ill try to add in my thoughts . first of all many people have 2010 as a low
and because of this i ask myself why 2010 a bottom . if you look at decinal
patterns it should be a high not a low . if you look at the benner business cycle
it should be a high not a low , and if you look at the verious wave counts there is
still a solid case that we have ended or are still in a 4th wave . so why would 2010
be a bottom . next the decline no matter which index you look at is a 3 wave move
weather it be 1 2 3 4 5 a b c 1 2 3 4 5 , or 1 2 3 4 5 a b c d e 1 2 3 4 5
it is a 3wave move . and 3 wave moves are not 5's . hence the move was corrective .
lastly while we cannot trade based on news events or base trading on the what is happening
the fed is injecting by what ever means possble anything to keep this so called bull market
alive and we are in an election year . so if i look at the wave count as a 4th wave which does
in deep count as one and i take all the fed action into it . then we should be in for a
5th wave rally in which several things should take place , 1 the fed will use up all its bullets
2 the election cycle will present itself with a 1 or 2 year rally with the new president in office . this all points to 2010 as a top of the last gasp of a 5th wave on the dow .
there there is the sox index which from 2002 lows has a wave ( A ) into 2004 and a complex
wave ( B ) that is just endining or ended . so we have wave ( C ) up coming in the sox
which is also a ( C ) In the ndx ( nasdaq 100 ) and then there is the banks that wave count in the bkx ended with an overlapping 5 waves so that was an ending diagonal pattern but was it
an ending diagonal 5th wave of an extended 3rd ??? which ive seen to many times and gotten burnt
but labeling a 5th or was it the final 5th wave up . in my work we will see an uptrend into
atleast aug 6th 2008 if not a continuation back to a double top or even a slight new high in feb 2009. the bigger picture for me is not from here into 2010 but from 2010 into 2026 when the baby boomers are all retired and have no desire to buy a new house or are in need of a 2nd or 3rd home and are not spending nearly as much money as they do today .
to sum it up i think we are now entering a final 5th wave up to new highs over the next
2 years .
charts posted here
http://www.tradersaffiliates.com/WEEKLY%20UPDATE.htm

[Eventhorizon]

It is about time to draw attention to what the Fed is or is not doing, since it seems to be coming up in a couple of the comments.

If the data published by the Fed's open market operations committee is correct (and if it is false then we are in much worse shape than it appears), the Fed has reduced the Fed-sourced money supply over the last 6-7 months. To say the Fed is pumping liquidity is not supported by the data:

As of june 30th 2007: System Open Market Account balance = $786bn, Repo pool balance = $25.25bn => Total = $811.25bn

As of end of last week: SOMA = $714bn - $5bn (not yet shown on Fed's website) = $709bn, Repo pool balance = $22bn, Term Auct. Fac. = $60bn => Total = $791bn

Thus a net reduction i.e. destruction of $20.25bn of high-powered money. The Fed is not pumping liquidity they are reducing it. They seem to be acieving the long sought goal of directing liquidity where they want it (using TAF) without inflating (by reducing SOMA).

Understand the significance of the reduction in SOMA. This is the permanent backing for the currency. It has dropped 9.8% in 7 months. This is truly staggering. The last time SOMA declined was 1989, when it dropped about 5%. This reduction is UNPRECEDENTED in the Fed's recent history, and is one of the few facts that supports Prechter's deflationary thesis. For those who believe deflation is impossible, there it is, it is happening as we speak.

[Upstart]

Joe,

You make some good points. But why should we get carried away and expect to rally for a couple more years when the business cycle is rolling over? We've had a long expansion and a long rally from 2002 already. Much smarter people than me, like Jim Rogers, acknowledge that the cycle is at its end and we're heading into recession. (He says we're in recession now.) The 4-yr. cycle in stocks missed a beat in 2006, but doesn't miss twice in a row often; that's why I look for weakness going into 2010. I think there's something to the Decennial Pattern, but you can find years of decline in the "zero" year, like 1970, 1990, 2000.