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Another Banking Indicator Says Stocks Are Dover Sole- Wait. What? 11/17/20

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Truth. I can't believe it either. But it is what it is. 

Yesterday we looked at the overview of the CLI and the issue of new and secondary stock offerings. The CLI is still bullish. And the supply of new stock issues has not been sufficient to absorb enough of the demand to stop the advance of stock prices, although it has probably contributed to slowing the rise. Likewise, new corporate debt issuance, while massive, hasn’t been sufficient to pull enough of the demand for securities to cause a reversal of the rise in stock prices.

In this Part 2 of the report, I cover the remaining interesting and important indicators that comprise the CLI. Each has its own story to tell, but they all lead to the same conclusion. Still bullish, and, unbelievably, one key component says that the stock market is Dover Sole.

I find it difficult to wrap my head around that. But I won’t argue with it. If there’s one thing I’ve learned in 53 years of watching markets virtually every day, it’s not to argue with impartial indicators. They don’t care what I think should happen. They just show what is happening.

So here we are. The Fed is creating enormous amounts of excess liquidity, “liquidity” being a fancy word for “money.” I use the words interchangeably.

The Fed is creating that excess by pumping money directly into the markets via its POMO operations—buying bonds from Primary Dealers and paying for them by crediting the dealers’ accounts at the Fed with newly imagined money. That leads to secondary effects of increasing money in the system via credit growth, particularly increasing margin credit that results from rising securities prices.

This works, and will continue to work, for as long as the players have enough confidence in the game to keep buying. This keep pushing prices higher, increasing the value of collateral. That, in turn, allows for and promotes ever more credit creation. It’s the quintessential nature of bubble finance. Circular, and more. Always more.

There are those who say that this isn’t sustainable. There are also those who say that an expanding universe isn’t sustainable, that it will collapse in on itself.

In a few trillion years.

I’m agnostic about whether this must finally end in collapse within the foreseeable future. I assume that it will, but I sure as hell don’t know when. So I’ll just operate in the here and now, and respect the trend. We’ll always be alert for signs of change, but at the same time, never forgetting Rules Number One and Number Two.

Don’t fight the Fed.

The trend is your friend.

Meanwhile, as Yogi said, you can observe a lot by watching. I’m confident that by always being vigilant, and open to anything, we’ll be ready just in time to take advantage of, or at least protect ourselves from, whatever is to come.

Now to the indicators.

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Yes, I'm with you Greg Fokker .. Over the last 20+ yrs I've worked my way through inheritances, superannuation, insurance payouts, etc.  Just as well I own the roof over my head and have no debt or de

As I get on in years, after 30+ years of trading, sometimes almost fulltime, sometime successfully, most often not, I can say that the markets are the most fascinating of all human creations.  Life wo

Meanwhile.  Well, doesn't this look head and shouldery?

Click to engorge. 

tvc_2486081b846cd410bf0728b1858f88df.png

Hey, but at least no massive opening gap in NY. 

Or at least, not yet. 

I hate this bizarre pattern of massive opening gaps day after day in NY. But at least my chart picks have been on the right track since last Monday's debacle.  They've recovered to a 3.3% average gain on a 5 day average holding period. 5 days!  And that includes the impact of entering UAL 20% above the prior range on last Monday's absurd gap. It has recovered to a loss of just 0.4%. 

Cyclically, there’s no reason to get bearish here. Cycles of up to 6 months duration remain in gear to the upside. A 4 week cycle high is due now, but it won’t matter if the 6-8 week cycle is dominant. Here are the price targets and theoretical timing of these expected moves.

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What was the reason for the pop? Cetylpyridium chloride cures COVID? I've been swashing and gargling with that shit for a couple years. 

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As I get on in years, after 30+ years of trading, sometimes almost fulltime, sometime successfully, most often not, I can say that the markets are the most fascinating of all human creations.  Life would be so, so much better, if only I could have traded consistently.  If I could have traded like I play pool, or do a few other things, my life would have been easier, simpler, healthier- just better.

Then imagine everyone in the whole world with two nickels to rub together is trying to do the same thing, mostly for the same reason.  And yet the market somehow manages to defeat most participants - including the most sophisticated computers executing the most sophisticated algorithms programmed by the smartest people.

It's just breathtaking.

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Yes, I'm with you Greg Fokker .. Over the last 20+ yrs I've worked my way through inheritances, superannuation, insurance payouts, etc.  Just as well I own the roof over my head and have no debt or dependents.  I'm not blaming the way the market performs: rather it's my own weaknesses and an over optimistic view of my abilities.  I have worked hard to correct these and I think I see light at the end of the tunnel.  Mind you I have said this before.  In the meantime I pick up recyclables and cash them in, rent out rooms in my house on a casual basis and have a very modest lifestyle.   I am eligible for the age pension if it comes to the crunch but I'm hoping to stay self supporting until I shuffle off this mortal coil.  😎

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