Wall Street Quakes, Washington Not Shaking ~ The Risk Averse Alert

Tuesday, February 17, 2009

Wall Street Quakes, Washington Not Shaking

Sorry. But if announcement of that sticky, "Public-Private Partnership" part of Geithner's financial rescue plan is still "weeks away," well, what can I say? Call me naive. I still believe Wall Street is not consumed with a death wish (at least not explicitly) and they'll not push the issue of bailout so soon after Misters Bad Deeds went to Washington.

Of course, most of these burning firms are finished. They're hanging on by 4 trillion threads, a hijacked Treasury, a captive Fed, and a media psy-op to make Joseph Goebbels green with envy. Nevertheless, there's still room yet to maneuver. So, take your CNBC with ample salt to kill the bad taste their panic-stricken pâté is meant to leave, okay?

Today brought the NYSE its second lowest close of the past year (and of the past five-and-a-half years for that matter), yet the "carnage" was nil ... except for my Ultra ETF position ... which loss, of course, is meant to shake me ... but, in fact, fails to accomplish this objective.

Although several things I was not anticipating came to pass today, still, I am not writhing in fear. The Elliott Wave form unfolding from November's bottom is only slightly changed, if it is changed at all. That's it. No big deal.

Did anyone hear about a pending Senate Banking Committee investigation into Wall Street? Me neither. So, the absence of buying must be more part an act of attempted extortion than a widening crisis of confidence rooted in real fear.

Let me be clear. Volume today, relatively speaking, was meager. Another Madoff-sized scam in the books ... the auto industry a day closer to bust ... a few sovereign nations of Eastern Europe threatening default (portending a cascading wave of further defaults) ... Senators talking bank nationalization on network TV ... you'd think if there was real concern, there would have been an avalanche of selling. But notta.

Nope. I am not biting. Sorry, bear.


Tell me, where don't you see technical divergence? They're everywhere! RSI, MACD, volume. Check, check and check. Scared?

Not sure about the wave count. It's possible wave (b) is minutes from completing (if not complete already), which means wave (c) [up, up and away] is nearer than most fish in the "panic now!" camp dare imagine.


So, hitting new 52-week lows are a bunch of banks and financials, the company Jack Welch wrecked and several other corporations sacrificed on the alter of globalization. But the rest? Holding up. I guess common sense suspects Uncle Sam will come to the financial rescue, one way or another, resuscitating prospects for those not so completely exposed to the structured finance casino. Yes, indeed, I think it's a certainty. However, those financial firms hitting new lows ... the builders of a House of Cards who, come hook or crook (most likely the latter) scheme to have it their way ... well maybe, just maybe, they might still have it their way ... at Burger King. Bon Appetite. Say hello to the Queen.

But seriously, the NYSE New High - New Low Differential was something not long ago I said we should keep an eye on. And look, it's not even September 8th. Which means Lehman Brothers is still alive ... er uh, I mean Wall Street is not as near dead as the CNBC Circus would have us believe.

NYSE 5-min

Well, there's another thing that went against me (in addition to January's low decidedly being taken out). I thought last Thursday's RSI spike meant bottom likely was in. Whether unfolding from last Monday's peak (2.9.09) are five waves down or three (i.e. a-b-c) is in the grand scheme of things inconsequential.

(I'm siding with the former. Volume over the duration supports the five-wave view, having peaked during wave 3 [down] last Tuesday, while diminishing today as wave 5 unfolded.)

RSI's oscillation from buy-side to sell-side during the past week's decline — registering an extreme sell-side reading today — is fitting character of a C wave (as labeled on the NYA daily chart above, wave c of b of x).


Yet judging by this measure you can see why I suspect wave (b) might be ending, bringing to the plate wave (c): the anticipated next leg higher off November '08 bottom — a.k.a. the market's melt-up.

Sideways trading over the past couple months generally has been confirmed by the NYSE Advance-Decline Differential every step of the way. Come what may, there certainly was nothing terribly foreboding signaled as a result of today's one-way trade.

And let's not forget those Put option hedges protecting long positions. This was discussed in last Monday's (2.9.09), On the Paradox of VIX Levitation. The point is a vested interest has financial reasons for seeing the market does not fall apart...

Fast Money
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