Planet Yelnick

Credit Spreads Narrow, Big One Fading?

Of course the Prechter World thinks the Big One is coming, especially after last week's sharp drop in equities.  But looking deeper, it appears the crisis is abating.  Obvious indicators: oil softening, Dollar strengthening, GDP revised upwards, no official recession yet.  Unobvious: credit spreads are narrowing.  In particular, the LIBOR vs Treasury rate spread is narrowing.  We are not out of the woods, and the toxic waste in poorer quality debt is still a dark force lurking in the forest.  Yet, last week is a bit of an anomaly, as credit spreads narrowed but the S&P fell.  The Surge awaits ...

More on Prechter Warms to the Surge

Several questions and comments to the prior post compells me to add a little more analysis of Prechter's latest  EWT.  Nothing substitutes for going to the source, so I again recommend you read it.  Please review the prior post then my analysis continues below the fold.

Prechter Warms to the Surge

Not by name of course, but his just-published EWT lays out the bigger picture, and sees the odds of a final 18 month +/- surge in stocks as rising.  (My prediction of The Surge is posted here, with some updates based on cycles and market sentiment here and here.)  Prechter is a very good analyst, and in this EWT he updates the wave count and lays out three scenarios.  I expect the STU to continue to sing the Big One Down song, especially after this past week, but Prechter lays out fairly good arguments based on waves, cycles, decennial patterns and Presidential election years as to why we may go to new highs into 2010, and have a double dip into 2012 and 2014, before this whole move from 200 is over.  I like it when Prechter returns to wave counts instead of car styles or justification of socioeconomics.  I would recommend you read this EWT. 

Drilling Through the Oil Line of No Return

A week ago we applauded Fibonacciman for his oil call at $127.  Oil of course faded then broke through and ran past the STU's line at #131.  The STU has some explaining to do, since they said if $131 were violated, then the Elliott wave count would break (would make wave 3 the shortest).  On the day after that blog post, another part of EWI put out this video, which has turned out to be prescient .   I will wait to see how EWI squares its too conflicting views.  The video suggests we are now in wave iii of 5, and should run up fairly strongly. 

Yves Raises a Red Flag

Yves now has a sell signal. Check this chart.

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

Moving the Line of No Return

Special Thursday STU notes that their prior call of a wave 2 top on May 2 has been broken.  The S&P has exceeded the May2 high.  (Dow is still below.) Most likely (assuming their count is correct) the major markets will continue to rumble and stumble upwards until the 61.8% retrace level (Naz2600, SP1450).  The Dow meanwhile is bumping up to its 200DMA as well as trendlines back to the lows in Aug82 and Mar03, which might prove to be resistance to a further advance. 

The STU adds an interesting comment on oil.  Yesterday I noted Fibonacciman's line at $127/bbl, which was hit then oil dropped from it.  The STU notes that $131/bbl cannot be breached without breaking a prime wave rule - that wave 3 cannot be the shortest wave.  Psychology is also extremely bullish (90%+), a good contrary indicator of a top.

Waiting For the Line of No Return

Neely pulled back from his big C wave down today.  He still expects it, but sees us meandering higher first.  His line remains SP1475.  In the STU Hochberg is out for a few days, and his partner Kendall is filling in, but they both still see a wave 3 down as still imminent, albeit perhaps after a few more days of a complex wave 2.   The STU line has been long breached to the upside, and they are tap dancing. 

Springtime for The Surge?

Deutsche Bank ran an analysis of 100 tech stocks and now sees reason for the IPO window to re-open.  More than half the companies reporting exceeded their earnings estimates.  As the report concludes:

Our sense, colored significantly by input from our tech sales force and conversations with tech investors, is that there is a market now for new issuance.    A month or so ago if we asked a major tech investor what his appetite was for an IPO the probable answer was that he had more important issues; the decimation of his portfolio and some hard thinking about his 2008 projections.   Unfamiliar and relatively illiquid stocks (new issues) were not a priority.  When we ask now we hear that they are looking for organic top-line growth stories with defensible technology/brand, sufficient liquidity and strong visibility. That's a big shift.

New tech issues is a key precursor to the Surge.  Watch for new issues and how they do over the next few months. 

Oil and the Line of No Return

Fibonacciman takes the prize for best call on oil.  He primarily build timing models but he also looks at Fib and Lucas levels, and weeks ago he predicted Oil would top at $127/bbl, which it just hit and faded.  Now, this may not be the top, but if it is, a great call. I drink his milkshake!

Yves on TV Friday

Watch Yves on Bloomberg TV this Friday 17:00 ET  on Taking Stock ... also on Bloomberg.com

Prechter on TV Wednesday

Bob will appear on Bloomberg television for an interview in the 5 p.m. hour (Eastern Time) tomorrow, May 7. Visit Bloomberg Television -http://www.bloomberg.com/media/tv/ - to see if it's available in your area. Bloomberg TV is also available on the Internet on TVU networks, channel 10085.  See http://pages.tvunetworks.com/ to download their player.

Yves Raises a Yellow Flag

Our favorite guestblogger called the rise since January, but now raises a caution flag. 

Bush and the Line of No Return

One thing we know about W is that he is trying to correct the sins of his father.  First, invade Iraq and finish the job.  Second, be 'compassionate' to get past being born with a silver spoon in your mouth.  Now, make absolutely positively sure there isn't a recession going into the election year.  So, the wasteful tax rebate. And, pressure on the Fed to keep rates low to keep the Dollar low so earnings from exports keep the economy slightly above recession.  Hence I think we are past the low for the year, and this market will climb a wall of worry into 2009.  In general the market is up during election years as Presidents do what W is doing to pump the economy; sadly, W's dad showed great financial discipline by not doing this, and lost.  So his principled stand was lost to political calculation. 

When will The Surge surge?  The first obstacle is the popping of the Commodities Bubble, which may be happening as the Dollar is solidifying.  The second obstacle is the uncertainty over the Demo candidate.  Normally the election year surge starts by May, as the candidates are known by then; and often the winner is known.  This year we may see a continued trading range with a slight upwards tilt until the Demo convention in August, unless the two Demo's self-destruct before then, and McCain is presumed the likely winner.