One Sick Puppy ~ The Risk Averse Alert

Tuesday, July 07, 2009

One Sick Puppy

You know, you really have to hand it to the six or so power brokers doing business on Fantasy Island. They're not in any wholesale fashion unloading their bloated inventories of overpriced equity claims.

Trimming exposure in certain names ... keeping appearances ... playing the game ... as though this were, say, 1998? Sure looks that way.

However, do not let appearances deceive. This is one sick puppy...


Today's light volume first caught my attention. Yet consider this in the context of profound selling potential mentioned here yesterday.

True, stocks can fall of their own weight. Such is fate absent a bid. And that is present reality. Buying interest has taken a holiday.

Today's light volume should by no means be regarded a bullish sign. Indeed, there were more shares traded today than last Thursday (7.2.09). So, despite stocks being even greater bargains today ... and despite the S&P 500 approaching a line of support established over recent weeks ... the bid still has left the building.

But only the slightest selling has brought us to the precipice. One more step and it's over the edge. That's when an avalanche of shares should be offered up. Absent a bid, profound selling potential is set to become a sickening reality for those who just don't "get" why equity is dead money.

SPX 5-min

Being that bloated inventories of overpriced shares are being but spoon-fed to the market over recent days, there's every reason to suspect it's time for a CME to the rescue operation ... coaxing a bid and holding up appearances for a few more days.

This sort of near-term outlook is, indeed, fitting ... following last Thursday's throttling taking RSI to a deep, sell-side extreme. Normally, you would expect a pause in selling soon after relative strength becoming so one-sided.

Furthermore, look how RSI is diverging as the S&P 500 continues sinking to new lows since last Wednesday's peak. Expect a bounce, then.

Absent any upside surprises during this bounce (beyond Cramer waxing eloquent about how Bubbles Bernanke saved his world), the setup for a subsequent bout of profound selling should be complete.

Fast Money
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