Pinocchio Named to Lehman Board to Help Increase Transparency ~ The Risk Averse Alert

Monday, June 09, 2008

Pinocchio Named to Lehman Board to Help Increase Transparency

Today, I suppose, we learned why dividends matter. Let's put it this way. A 2.31% yield on a stock that has cratered 65% over the past year and a half is not likely to excite a lot of buying interest ... now that circumstances suddenly require another $6 billion dilution from a company whose board is conclusively proven infested with liars. Felix Rohatyn should have been everyone's first clue. They don't call him "the fixer" for nothing.

It's like late '28 / early '29 all over again. Same greed, different era. At present it seems we remain quite squarely in the denial phase, where every effort will be made to save the unsalvageable.

Today's meeting convened by NY Fed President, Timothy Geithner, with 17 major financial institutions is one case in point. Why anyone would think a central derivatives clearing house is anything but an example of rearranging the deck chairs on the Titanic is beyond me. However, for our purposes here let's not lose site how this Wall Street power grab might go a long way to substantiating the potential for a stock market melt-up.

And beyond that we should also bear in mind such lies as Lehman Brothers confessed today have not in their propensity just up and died, thus clearing the way for a new era of indisputable transparency as makes for a sound investment environment.

The New York Times reports, "Mr. Geithner said the evidence he had seen indicated the run-up in oil prices was not caused by speculation." Of course, the Times failed to mention the evidence was presented by Lloyd Blankfein and John Mack.

Alright, alright... enough editorializing.

Wall Street is on fire. However, this does not necessarily mean things must immediately fall apart. I continue believing the stock market's imminent meltdown is still some days away from bursting onto the scene. Then, in no time at all it will be like October 1998 on Wall Street ... starting first with the adjusted share prices of most of its major firms ... Citigroup already leading the way, and now Lehman Brothers (and others) following.


NASDAQ continues holding up, relatively speaking. Today's volume contraction from Friday is a good sign indicating selling exhaustion. This supports my belief the NASDAQ Composite is still set to rise to a new, post-3.17.08 high before turning over with a vengeance. RSI also supports my view a last-gasp advance lies straight ahead, targeting 2600 (and small change). Everything still looks a lot like late October '07.


It will be interesting to see if the NYSE Composite diverges a bit from its performance late October '07. You will recall over the past week or so a couple instances when the NYSE Composite was little changed while the NASDAQ Composite moved strongly higher. So, I wonder if this [expected] disparity might become more pronounced during the coming bounce. It seems just prior to the stock market's anticipated meltdown this would be a foreboding development we might better expect.

You will notice, too, today's trading on the big board contracted just like on NASDAQ. Again it's a good sign of selling exhaustion and supports the likelihood the stock market probably will soon bounce.

OEX 5-min

I will be honest. RSI registered on the above chart of the S&P 100 plotted at 5-minute intervals bugs me. I am disturbed by the fact RSI the past two days never reached as low as last Tuesday (6.3.08). As far as this Elliott Wave Guy is concerned it "should" have (although it is not absolutely necessary).

But then again ... I admit to sometimes putting too much emphasis on RSI as a means of "confirming" the Elliott Wave structure I believe forming.

In this case the price-RSI divergence you see above — comparing the S&P 100's decline over the past two days to its decline early last week — might better be viewed as raising the likelihood the S&P 100 will bounce to 647. The RSI divergence indicates the underlying intensity of selling was not as great these past two days, despite price performance suggesting otherwise.

That said, though, just looking at the S&P 100's decline over the past two days I really must suppose a retest/extension of today's lows is likely to occur before a solid bottom is in place. An RSI divergence — relative to readings registered these past two days — should form in the process.

I plan on playing the anticipated bounce to 647. It should be an easy double ... and probably more. Those of you on my Trade Notification List, keep your eyes open for my email.

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