When Funny Makes Fools of Those Who Laugh ~ The Risk Averse Alert

Thursday, July 23, 2009

When Funny Makes Fools of Those Who Laugh

You're probably wondering...

Is there suddenly some reason to no longer couch my analytical viewpoint in perspective revealing the existence of investor sentiment that's ultimately bearish? Does the altered complexion of today's advance somehow challenge my negative, longer-term outlook? Have I been mistaken identifying the presence of denial and complacency, the likes of which has been objectively established via analysis of actions (or lack thereof) involving the movement of money in the stock market?

I am afraid not.

In fact, today's slight pickup in buying interest and improvement in underlying technical condition (particularly with certain NASDAQ measures) ... occurring at this juncture, after many preceding days highlighted by a suspiciously juiced [futures] bid whose positive impact was sustained by a notable absence of such worry as typically brings increased selling during bull market advances ... only gives teeth to the view that, denial and complacency, indeed, largely characterize the present psychological climate in the stock market.

This, I submit, confirms the market's present advance is but a counter-trend rally in a still-unfolding bear market. Likewise, the end of this advance now appears at hand. What's more, I am afraid we could be on the verge of witnessing a terrible, terrible collapse.

Truly, this is not what I want. I loathe the thought of chaos. Even now I mourn those whose lives likely will be lost were this worst case scenario to unfold. Yet tonight I once again fear that, Dow 3600 could prove much too optimistic a bear market target.


Funny ... when the market peaked in early-January [relatively muted] volume accompanying the final move higher off November '08 bottom maxed out the day top was reached.

Funny ... something quite similar appears to have culminated today. As alluded to above, volume did pick up, indicating increased buying interest (as well as healthy worry among today's sellers). Yet this increase was, in fact, only slight. Seen in comparison with volume registered during the greater bulk of the market's counter-trend rally off March bottom, today's volume remained relatively light.

So, should this final burst of exuberance similarly end as badly as earlier this year, the only thing funny to come of it probably will be those who tell the Shempster where to stick his bear stuffing. Truth is something much more severe than the pullback he's anticipating appears in store...


Uh, do you see any disconcerting parallel the present moment shares with the fateful month of May '08, when a prior bear market counter-trend rally peaked and was followed by five wicked waves down?

Funny ... relative strength measuring the improvement in the NYSE New High - New Low Differential in May '08 exceeded the same at the time the bear market began in October '07. And this while the momentum of improvement was fading.

Funny ... much the same circumstance exists right now. Knowing what happened last year, is not denial and complacency, in fact, presently being exhibited while conditions characterized by generally shrinking operating revenues are being widely reported by NYSE-listed companies? Should such operational challenges persist (and boring Ben cautions they likely will), are there probably not more issues than can fit on a dart board whose fate portends a visit with Mother Goose Egg ($0)?

So, where's the fear? Same place as last year? Right about where that bear stuffing should go, Shemp? This really is no laughing matter when you consider the "safe from Washington" tech sector...


Seeing any pattern here?

Considering that advancing issue participation on the Pump and Dump over the duration of COMP's advance off March bottom has been markedly thinner than has been the case on the NYSE ... and considering that COMP remains well-shy of where it traded last September when Lehman bit the dust (that's less than 52 weeks ago) ... the presently wider differential between new 52-week highs and lows on NASDAQ represents something of a disconnect.

Denial is believing the 21st century's most significantly under-performing sector — tech — could somehow be immune to systemic issues now more greatly affecting the entire asset class called equity.

Complacency is continuing to hold those greater numbers of near-death issues that have been trading on NASDAQ in relatively flat-line fashion since the lug nuts came off the tech sector, post-Y2k.

Funny, too ... tech was clobbered last year despite similar belief the sector was immune to trouble among financials.

Funny ... it appears there presently are even more believers in this mistaken, tech immunity thesis.

Tragically, those who fail to learn from the past are condemned to repeat it. When the consequence is great financial loss this is no laughing matter! But what can I do?

Well, for one, not get worked up about my UltraShort ETF position, because I believe it still sits like a vulture waiting to pounce. Given funny similarities in underlying conditions, now versus last year, just prior to everything coming unglued, I see a coming day when I am laughing all the way to the bank (that is if I can find one still solvent).

Truly, I fear the stock market could soon collapse. More on this tomorrow...

Fast Money
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