No Fog on These Rose-Colored Glasses ~ The Risk Averse Alert

Wednesday, October 15, 2008

No Fog on These Rose-Colored Glasses

David Roche of Independent Strategy Ltd. hit the nail right on the head (and speaking of hitting the nail right on the head, how about that Mandy Drury?) Mr. Roche thinks the financial system rescue falls short. There's nothing being done to audit bank balance sheets and clean out the crap. What novel analysis!

(Isn't this what we were harping on the Japanese to do back in the early '90s?)

What's more, it seems the nation who gave us the Statue of Liberty wants to take it to the Brits. Talk about going for the throat! We are witnessing history unfold before our very eyes. Indeed, the bloodshed may soon get personal...

So, any wonder credit markets have barely improved?

Seems to me, though, stability is not a distant prospect. And let's get something straight. Bank lending is not the issue. Hedge fund and leveraged speculator balance sheet expansion is. In the world of monetarist monkeys the name of the game is ... was ... and always will be "Inflate Assets or Die." Energy trader, Bill Perkins, gets it.

So what asset, then, stands ready to be inflated? Or, said another way, what asset is in line to be leveraged to the teeth?

Well, how about bank deposits? Or more accurately, Treasury securities (a.k.a. tax receipts)? Is this not the trend? Is this not what the bailout is made to facilitate? Then, those who say "the financial crisis is well on its way to being solved" (as did Bill Fleckenstein during today's Fast Money) could be on to something.


Welcome to Divergence City. As you can see, today's close was just a shade above Friday's. Yet RSI is much improved ... and volume today was downright sleepy (relatively speaking). That's a good sign for those of us who are of the "market is bottoming" mentality.

Still ... we're not out of the woods. We want to see MACD decisively turn up. This will indicate strength (i.e. support) is building. We also want to see RSI improve a good deal more ... rising above 50 ... and then diverging once again as last Friday's index lows are again retested sometime over days/weeks ahead.


Same picture on the Pump and Dump, but better. Today's close was a new low for 2008. And still, even MACD diverged. So, that's encouraging, too.

Despite today's new low close, NASDAQ finished -8.18% and NYSE -9.99%. The more speculative index, then, held up better. That's also encouraging.

Both the NYSE and NASDAQ McClellan Oscillators (though still on the sell-side) definitely held up nicely today.

And again, both the NYSE and NASDAQ Bull Percent Indexes held up quite well despite respective stock indexes closing in the area of this year's worst levels.

VIX came in (relatively speaking), too.

It rather looks like buyers stepped aside today and let natural forces drive prices lower. It may be the same story at the start of Thursday's trade, as well. So, look for a possible replay of last Friday, and hopefully a positive finish to boot...

Fast Money
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