Timing the Effort to Forestall Financial Collapse ~ The Risk Averse Alert

Monday, November 10, 2008

Timing the Effort to Forestall Financial Collapse

Kudos to Cramer for his comments tonight on General Motors. At least someone on America's self-proclaimed "business channel" gets it.

But let's get real. What's at stake is not just a couple million jobs. Rather it is the prospect of restoring the industrial capacity of the U.S. economy. If ever the stock market — indeed, the entire global financial system — is to regain stable ground, then technologically progressive investment in capacity that enhances the productive power of labor plainly is necessary. Shut down the auto industry's potential to originate this capacity and you are only further hastening the financial disaster presently unfolding at an accelerating rate.


Today produced the "relatively dull action" I thought likely. Whether this continues for another day or so, then is followed with selling taking indexes toward their October lows remains to be seen.

There's nothing hard and fast about the markup I have added to the above chart. I simply wanted to demonstrate the possibility relatively directionless trading might develop over the next several weeks, only to be followed by one last dip to the lower end of the [yet undefined] channel containing the market's decline since May 19, 2008.

So, considering Friday's remarks surrounding the NYSE Bullish Percent Index, let's not discount the possibility this measure might more or less hold up over the next several weeks ... should indexes indeed trade sideways.

As for supposing the market is in the early stages of a bottoming process (rather than pausing before steeply selling off again) ... despite there being much bad financial news and the threat of more to come (GM), there's simply no denying every effort is being made to forestall collapse.

Now, I certainly would not go so far to suggest technical evidence indicates there's a consensus belief this effort will succeed. Nevertheless, it seems reasonable to consider the current period as being similar to the July - October 2002 period, bearing in mind that, although October '02 marked bottom of a three-year bear market, a positive reversal of fortunes did not develop until March '03.

In other words, belief in the ongoing effort to forestall financial collapse probably will not be evidenced (via a wealth of significant technical divergences) for some months to come. That said, though, I continue supposing bottom is not much lower than indexes have fallen thus far...

Fast Money
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