Yves Goes Short after Two Repeated Sell Signals in His Liquidity Index

Yves comments that "The short position is very rare for me, but follows two repeated sell signals on my liquidity index.  We had in late June 2007 the first sell signal in the liquidity  index, but it stayed on sell on the bounce back up to 14,000.   Then the second sell signal came on the 3rd of October.  More recently we had the first sell around early February 2009.  The market dropped on cue but my index stayed on sell on the rebound, just like in 2007;  but recently generated a sell again in late June.   Usually that’s good enough for me to go short."  Here is his analysis behind his sell signals:

Why you should get ready to be marked (down) to market ….

Slowly but surely this administration is realizing that they will need a second stimulus plan.

The government is now facing criticism that they acted too slowly. I do not believe that they will make this mistake again. I therefore subscribe to the idea of a second stimulus plan to be announced before year end. High frequency traders have given us hope of a fast recovery. However there is so much that the plunge protection team can offer. It is with this in mind that one can appreciate the recent acceleration in repurchase agreements. These are loans originated from the Fed and used by big investment banks to buy and sell stocks. The invisible hand so to speak started to buy massively around the month of February. Combined repos jumped from about 9.8Billion to a recent high of over 1.4Trillion. Rarely have we seen such an enormous injection of borrowed money in such a short lapse of time. The fascinating relationship held at over .86 correlated until the recent crash. They dropped the ball so to speak because the pressure at the gate was too strong. We have started to see a removal of loans and the uprate had become unsustainable by any standard. It confirms our view of a downtrend for stocks.

We have initiated short positions since the 29th of June at around 8530 on the Dow. We believed then that it was a wave 2 in this developing move. We also indicated that we prefer to short the secondary top.

The talk of inflation has us disagreeing since we are solidly in the deflation camp since early 2007. The money supply is actually shrinking. The stocks are behaving as they should and the 30’s are a perfect example of flows and its impact on the stock market. We are following this with interest since the turn up will signify a bull advance. Banks are however not lending being in repair and survival mode. Once free to lend who says borrowers will borrow?

The new normal seems to be toward savings. But really who are those folks in the media/government trying to fool? The new normal is all about paying back your ridiculous amount of debt. You end up with little or no savings. This process will continue and has to effectively render balance sheets clean of leverage.

The government is doing the exact opposite of this trend:  it is taking on more leverage. At this juncture it was perhaps out of necessity to save the patient. The next injection /stimulus are expected in my opinion to have a lesser impact for each dollar spent. That would also be true for a tentative third stimulus. It all seems so clear that we are heading toward big cuts in spending and increase in taxes at a time where assets are still deflating.

One look at the recent new drop of the Baltic dry and you realise that China will not bail us out. On the contrary, I think China will see riots emerging.

The administration is fighting every market forces to let price discovery dictate the economic direction. Taking fast pain would really open the doors to a faster recovery. Let capitalism win in a capitalist society.

Yves Lamoureux, Investment Advisor, Blackmont Capital Inc.

The opinions contained in this report are those of the author and are not necessarily those of Blackmont Capital Inc.. Every effort has been made to ensure that the contents of this document have been compiled or derived from sources believed to be reliable and contains information and opinions which are accurate and complete. However, neither the author nor BCI makes any representation or warranty, expressed or implied, in respect thereof, or takes any responsibility for any errors or omissions which may be contained herein or accepts any liability whatsoever for any loss arising from any use of or reliance on this report or its contents. BCI is an independently owned subsidiary of CI Financial. CI Financial is a Canadian owned diversified wealth management firm, publicly traded on the TSX under the symbol CIX. Blackmont Capital Inc. is a member of CIPF and IIROC.

Comments

[RNB]

Yves,

"One look at the recent new drop of the Baltic dry and you realise that China will not bail us out. On the contrary, I think China will see riots emerging."

China is already facing riots in Xinjiang. You must have had a crystal ball!

[vovor]

Or he wrote as the story was developing...
Riots in China is a recurring story when talking about freedom restrictions.

[Yves]

My point is for the commodities bull.Perhaps I should have explained it better.
The actual riots are not economicaly driven(and are not the ones we address) in that real sense that I envision but more so about minorities and repression.I think that the chinese bank system has similar lax risk management and we ought to see it fall hard.China will show some chaos and those upcoming "riots" are going to be riots held by the Han in more major cities .In that sense bulls will not be saved by asia.

Yves

[vipul garg]

the disease of prechterian 'socioeconomics 'is quite spreading..
its time agaenices label it as pandemic .

since everyone is having a ball making predictions , i ll make one too
it will be europe which will take us down this time.

[da bear]

anyone think the PPT steps in soon? it looks like the dollar free fall has subsided and TBT is going down, so maybe they have some breathing room.

dollar index at 80 looks like good support. i am thinking that full-out CRASH SIGNAL is approaching.

anyone have EWI's latest wave count? Primary Wave 3 down may have already started. DOW needs to get back to 8,200 quickly.

now or never for stock rally. although it seems as if the drop over the past few days portrays a good five waves down. 8,100 was the low for the day. that better hold.

here is a link to the two day chart in the DJIA: http://bigcharts.marketwatch.com/advchart/frames/frames.asp?symb=djia&time=2&freq=6

Cash is king. Gold $900 to $911 is the key. if that don't hold say hello to Gold $800...

da bear

[vovor]

Interesting viewpoint, thanks for the details Yves.
Et vive le camembert qui pue Interesting viewpoint, thanks for the details Yves.
Et vive le camembert qui pue ;-) Français ou canadien ?;-) Français ou canadien ?

[Poe]

head and shoulders neckline is broken

spx now headed for 500-600 over next 5 months

[Mamma Boom Boom]

-Can you say 'Rally'?

-Can you say "Discobolus'?

-Can you say 'Goldman Sucks'?

-Can you say 'Larry Kudlow'?

-One of my Day Trading Models went to 40% at noon today. That don't happen often.

[TERA BAAP Fan]

Where is TERA BAAP? I miss him.

[Pig]

Neely flushed him down the Neowave (Toilette Inc.)

[Brian]

EW still considers the market to be in wave 2 with the next best guess at wave 1.

Anyone other then me find today's STU interesting in that it implied some sort of interventions (possibly from the PPT)?

Quote: "...with prices hovering just beneath 878, a massive amount of buying hit the market. NYSE Ticks exploded to +1466, which is the highest extreme since shortly after the March low. It seems as if some “big money” did not want the S&P to close beneath this neckline."

I haven't seen much conspiracy talk from Hochberg before, but I am a new subscriber. Why he chose "did not want the S&P to close" instead of "saw value in the S&P" would be nice to know.

[anon_aka_TERA BAAP from Neely Toilette]

Neely flushed him down the Neowave (Toilette Inc.)

Posted by: Pig | Wednesday, July 08, 2009 at 04:18 PM

HAHAHHAHAHAHAH

[DG]

Brian,

I have a sort of "outside the box" theory about the PPT, which is that they can move the market, but only to create x-waves in an upward direction, to try to stave off the inevitable finding of a bottom. So, if you see an x-wave up in the market, that's the PPT. Everything else is "mass psychology".

[[email protected]]

I just want to clarify my previous post because I got some emails:

"I am starting a Neely River Theory trading blog. I want to allow others to post besides myself, but of course respecting Neely, only previous students will be allowed to read/post

Email me at [email protected] to answer some quiz questions if you want to follow this blog"

The quiz questions are to verify that you are a previous student of Neely's River Theory