An Attack on Brown Makes the Market Go Down ~ The Risk Averse Alert

Wednesday, November 12, 2008

An Attack on Brown Makes the Market Go Down

Once again I must go where the Tory press dares not tread...

Did you hear our boy Hank at Treasury railing today about the need to address "global imbalances" at the upcoming G20 summit scheduled for this weekend?
"But let us not forget one fundamental issue which lies at the heart of our problems. Over a period of years, persistent and growing global imbalances fueled a dramatic increase in capital flows, low interest rates, excessive risk taking and a global search for return. Those excesses cannot be attributed to any single nation. There is no doubt that low U.S. savings are a significant factor, but the lack of consumption and accumulation of reserves in Asia and oil-exporting countries and structural issues in Europe have also fed the imbalances.

"If we only address particular regulatory issues – as critical as they are – without addressing the global imbalances that fueled recent excesses, we will have missed an opportunity to dramatically improve the foundation for global markets and economic vitality going forward. The pressure from global imbalances will simply build up again until it finds another outlet."

Wait a minute! I thought the meltdown of the housing market was "at the heart of our problems." Hasn't this been the standard line taken thus far?

Who, then, is Paulson targeting when he says, "If we only address particular regulatory issues... ?"

Could it be the stuttering Prime Minister of Great Britain, Gordon Brown, who is proposing a New Bretton Woods whose similarity to the old Bretton Woods is in name only? And could the Treasury Secretary's shot across the bow have been why the stock market took a dive today?

It's possible the U.S. Treasury Secretary is sick of taking orders from the U.K. Not that I expect much to change from a Treasury whose likeness bears as much similarity to the Hamiltonian model as I share politically with Larry Kudlow.


So, uh, that's the MACD reaction I was projecting last Friday. We've arrived via a buyer's strike ... hence the contraction in the volume of shares traded. And I must say the market is at a critical juncture ... if its present consolidation in what may prove to be a long, drawn-out bottoming process is to continue.

Judging by technical divergences galore (you know the suspects), odds are good the market will be bolting to the upper end of its recent trading range in short order.

(The only technical reading that brought a raised eyebrow today was the NYSE Advance-Decline Differential. It was the worst reading since early-October. I suspect this but confirms my view the market will not be launching on its anticipated recovery of recent months' losses anytime soon. Beyond this I am not reading anything more into it.)

OEX 5-min

It appears there will be a little more work needed before the turn higher to the upper end of the market's recent trading range gets under way. Today's late-day dip leading 5-minute RSI to a new low for the week supports this view.

Thus, I would look for RSI to register a reading improving upon today's best level (slightly above 50), then a move lower bringing indexes below today's low, while at the same time 5-minute RSI diverges.

Once this occurs get ready for another heaping helping of blather about mustard seeds from a guy whose mouth is as big as Jupiter and whose intellect gets its brilliance from the dark side of the moon...

Fast Money
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