Crude Oil Lubricates Gears Driving Stock Market Into Meltdown ~ The Risk Averse Alert

Wednesday, May 21, 2008

Crude Oil Lubricates Gears Driving Stock Market Into Meltdown

"In my capacity as the chairman of a significant political action committee, I must focus my comments on the top-down reality of the present situation. The onrushing collapse of the global floating exchange rate monetary system is accelerating, in a hyper-inflationary mode. Nothing is being done by any governments around the world to stop it. Today, in May, with petroleum prices soaring past $130 a barrel, with prices of food and other basic commodities skyrocketing, with the collapse of the international banking system moving apace, it is certain that the situation we shall encounter in June, July and August will be far more severe than the crisis we face at this moment, as bad as it already is.

"We have been gripped by a global, hyper-inflationary crisis since approximately July 25, 2007, three days after my announcement of that condition. We are now approaching an actual breakdown-crisis, more or less like that hyper-inflationary crisis which struck Weimar Germany in the Autumn of 1923. Whatever the actual date of the global breakdown event, we are entering a new phase in the present world, hyper-inflationary depression. Up until this moment, all policymakers in London, on Wall Street, and in Washington, are being insane, in their denials of this reality."

— Lyndon H. LaRouche Jr., May 21, 2008

Yesterday I said, "I think there's one more trip into new, post-3.17.08 high ground before the fireworks begin." This possibility remains faintly alive. However, its pulse was significantly weakened today, so I do not think odds of it occurring are all that good now.

This afternoon's collapse was just a thing of ugly. It was the very essence of the crisis of confidence I have been hammering on for some days now, and it swept over the stock exchange like a dark, ominous cloud. Call me what you will for having recently forecast trouble ahead. Just be sure you understand luck does have some part in it.

I mean it... Nothing is set in stone. I am loath to pound the table about anything ... even now. Instead, I am intent on letting the market announce when it is reasonably safe to pull the trigger. I believe the moment to act upon such rare opportunity as I have been forecasting for some weeks now has finally arrived.

In fact, I almost jumped in today just before 1:00 p.m... I held off, though, because one particular element of uncertainty was unsettling my will to take the risk. It took this afternoon's thud and a reasonable view toward trading disparities occurring in the various indexes I follow to conclude that the very conditions we should wish in place prior to a meltdown are, indeed, before our very eyes.

OEX 5-min

Interestingly enough, large-cap indexes (like the S&P 100) which have been lagging notably over the past couple months are now leading the way lower. To be honest, it was this condition's manifestation today (prior to this afternoon's meltdown) ... wherein the Dow Industrials were getting slapped around while the broader market was being coddled ... that made me unsure whether one final advance to new, post-3.17.08 high ground might still be in order.

Then came underlying truth's revelation ... bringing all sectors to equally join in the carnage by the end of the day.

And yet, the large-cap S&P 100 continues in its forward position, where it apparently is slated to lead the way still lower. You see this by the fact the index has fallen below its low set on Friday, May 9, 2008.

Contrarily, the broader NYSE and NASDAQ Composite indexes have yet to cross below the lows they each respectively set at that time...

NYSE 5-min
NASDAQ 5-min

What we're seeing here makes a great deal of sense in light of expectations for an imminent mini-collapse.

Large-caps are where the big money in the stock market is at (forgive me for stating the obvious). So, were a crisis of confidence indeed real (and I most certainly believe it is), then it stands to reason large-cap indexes, like the S&P 100, should behave just as we are witnessing and, indeed, lead the way lower (at least initially).

What's more, that a performance disparity persists between the large-cap S&P 100 index and broader indexes like the NYSE and NASDAQ following this afternoon's swoon ... suggests there's still a lot of selling yet to come. Soon enough the broad market's negative performance should dwarf that of large-cap indexes like the S&P 100. This, quite simply, is how sustained declines typically unfold.

Recall those "just not right" technical conditions underlying the stock market's performance over recent months. Add to this the evidence I am presenting here showing how the present crisis of confidence is manifesting itself through the performance of the various stock indexes I follow. Top this all off with a concern that surely must be growing in all relevant circles of interest — no matter what analytical methodology (technical or fundamental) they subscribe — as energy prices continue their parabolic ascent.

Indeed, this latter concern is becoming less abstract with each passing day. Today, both AMR and the U.S. Congress demonstrated how the threat of skyrocketing energy prices is very, very real.

You don't need to be a financial genius to fathom the catch-22 vested interests in the stock market are presently facing. On the one hand, profit prospects for U.S. corporations are beginning to look increasingly tenuous, at best. And on the other, it's simply much too early to think about how one might protect one's equity stake without risking a blow out of one's financial wherewithal. In fact, it appears we are fast approaching a moment when the fear of suffering an unrecoverable loss might become the overriding motivation driving decided action in which safety is sought at all costs.

What we have here is the making of a perfect storm ... precisely what I have been forecasting. I can hardly believe my eyes.

So, here's hoping we see some strength tomorrow providing an opportunity to initiate an OEX Put position. Specifically, I want to see the S&P 100 rise to the area where I almost pulled the trigger today (645). We might not be so lucky, but that's okay. Right now, it is well enough that conditions for rapidly multiplying $500 into five-figures over the days ahead are appearing increasingly likely.

I'm not sure how many weeks it has been since I raised the probability the March 17, 2008 low would be taken out. Originally I had given this likelihood a 40% probability, but then subsequently raised it to 70%.

It sure seems that, if this probability is to become manifest, the moment of truth has arrived...

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