Financial Titanic UBS Scuttles Lifeboats to Buy Minutes ~ The Risk Averse Alert

Friday, March 28, 2008

Financial Titanic UBS Scuttles Lifeboats to Buy Minutes

Monday, the S&P 100 could start with a bounce for the very same reason this was correctly forecast to occur today. Quite simply, with RSI diverging as the S&P 100 has fallen lower over the last few days, one can reasonably expect a rally. Today's trading only extended yesterday's RSI divergence. Thus, again, we might expect the stock market to bounce on Monday. If not at the open, then sometime soon after.

Monday's rally might also be a bit more dynamic than was the case at today's open. Indeed, next week could see the S&P 100 rise at least to the vicinity of 620 +/- and possibly even approach 630. However, unlike my uncertainty yesterday about what would follow today's bounce, next week's probably will be followed by selling taking the S&P 100 down to the 590-600 range. The manner in which this week's trade has progressed seems to assure this.

OEX 5-min
I continue to expect the intra-day low on Monday, 3/17 to hold up. Rather than speculate about how "strong hands might wish to create conditions that rattle weaker hands to give up more of their shares," as was suggested yesterday, let's first see how things play out early next week. I'd really like to see the S&P 100 drop to the 590-600 range before pondering any further about how things might play out over the next several weeks.

One thing I am fairly confident about is the stock market probably will not trade outside the range it has been stuck in for the past two and a half months over much of the month of April.

Should the S&P 100 move toward either end of the channel drawn in the chart above, there might be a good, short-term play (i.e. 1-2 days) worth recommending. What we are really looking for, though, are opportunities to score huge gains in the coming stock market melt-up. It should be a dandy. As long as the ongoing destruction of the financial system continues to be contained with copious loads of liquidity and federal guarantees, stocks should rise spectacularly despite the real, physical economy increasingly showing signs of collapsing...

News To Abuse

So, what do we make of a huge financial institution that abruptly cuts by upwards of 20+% the value of securities marketed as a "cash alternative" (i.e. presumably safe)? Union Bank of Switzerland (UBS) just did this with its clients' holdings of auction-rate securities. See this Wall Street Journal article.

At a time when central bankers can't flood the global financial system with liquidity fast enough, couldn't UBS have waited until Bazooka Joe cartoons soon were deemed "valuable" collateral accepted at a Weimar Bank near you? The stench of Bear Stearns grows thicker. The question is which cesspools of filthy scum masquerading as respectable financiers and politicians about to move in for the kill on UBS first demanded this pound of flesh from trusting clients of the bank? Chances are we will know soon enough...

company chart (UBS)

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