Since When is a Capsized Ship Not Sinking? ~ The Risk Averse Alert

Wednesday, August 20, 2008

Since When is a Capsized Ship Not Sinking?

Sharks continue circling their GSE victims ... pressing to consume their vastly larger, healthier limbs ... generating much turbulence around the issue of collapsing equity values ... rather than fretting over utterly unsustainable leverage added by Mortgage-Backed Securities (MBS) these behemoths guarantee.

This latter matter is deserving of far greater attention ... irrespective of Cramer's ranting about the lack of financial transparency impacting investor confidence in the system. Furthermore, all this is secondary to criminal matters affecting real people ... whose lives have been turned upside down by a greed-driven process that filled the pool of mortgages to be securitized at an unprecedented rate.

Long before Jim Cramer ... Wall Street wisdom stated, "When in doubt, stay out." So, were there in fact much uncertainty associated with the GSEs this thought might be worth considering. However, FNM and FRE have been falling fast for over a year now, so what really is the big mystery?

It is, indeed, only whether the cynic rightly sees a manufactured crisis elevating more of the same criminal activity to become the "crowded trade" in our beloved "free market" orgy.


The present similarity to recent periods past continues ... and suggests the market's bounce off July lows might play out a bit more before a final turn lower to bottom unfolds.

However, in keeping with the Case for Death by a Thousand Cuts it is entirely possible the S&P 100 has bounced as high as it will. As such, then, trading since last Monday's peak (8.11.08) might be the first in a series of cuts to come over the next few weeks. This possibility notwithstanding, though, a turn higher still appears in store ... once the present move lower is completed.

OEX 5-min

The price-RSI divergence formed during the S&P 100's decline Monday and Tuesday appears to have set the stage for today's bounce. However, I suspect we might see the market trade sideways for a day or three before sinking a bit lower. This would further the possibility mentioned above, wherein the S&P 100 has already begun its descent to bottom (in the vicinity of 520?).

Again, even were this the case, a move back up toward last Monday's peak (8.11.08) might be in order before any strong move lower develops...

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