A Day of Quandary Identifying Sacrificial Financial Zombies ~ The Risk Averse Alert

Tuesday, February 10, 2009

A Day of Quandary Identifying Sacrificial Financial Zombies

Y'all ready for an explosive leg up? Because that's what's next. As deep as today's collapse was, a doubly steep advance has moved on deck. Treasury's announced commitment to marry public investment with private finance is a positive for the stock market.

The plan is to inflate assets held by relatively healthier financial institutions and in the process heighten the legitimacy of assets already on their books. Additionally, the deck chairs on Titanic will be rearranged as hopeless institutions are identified and fed to the sharks whose balance sheets are to be strengthened.

That's the plan and it's as clear as day. I'm not sure what everyone on CNBC found so perplexing. Some parts of the financial system soon will be sacrificed while the rest are somehow backstopped through investment partnerships with government.

Who's who in this arrangement was today's quandary. So, the market sold everything with exposure to structured securities. No big deal.

Pisani claims the "flight to safety trade" came back today. Trouble with this analysis, however, is the fact the yield on 3-month T-Bills rose 11% today (returning a blistering 0.0305%).


Do you recall my concern about the market's performance on Monday, January 26th? Today's trade simply is part and parcel with the red flag raised that day.

The expectation has been for the continuation of sideways trading within the range established over the past couple months. An advance to the upper end of this range ... in all probability resulting in a new high being set, post-November bottom ... has been the outlook since.

Not only does today's trade fit the form expected over the past couple weeks, it indeed confirms the fact analysis anticipating what has unfolded over the duration is spot on.

More times than not, days like today serve to clear the air. What's next up becomes all the more clear. Today's trade had this effect.

NYSE 5-min

So, now we look for the completion of a typical price-RSI relationship coinciding with a 5-wave move down from yesterday's peak. Once that's a done deal, the market moves higher.

Every single underlying technical measure I assess here from time to time continues to agree with this outlook.

Today's trade was not the least bit ominous, nor are the screams we heard from perplexed Monetarist Monkeys any concern at all. They're clueless. We can just leave them be for now...

Fast Money
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