Pants Down Camp Bursting at the Seams ~ The Risk Averse Alert

Tuesday, October 06, 2009

Pants Down Camp Bursting at the Seams

Oh boy. The count of traders confidently claiming downside risk was extinguished today, and so, are now positioned long, was, well, off the charts. One notable exception: Shemp!

(Good show tonight. However it seems everyone has the S&P 500 pegged for 1200. Funny how the stock market so often disappoints when most players stand ready to be caught with their pants down.)

NYSE 5-min

Today's spectacle appears the icing on a largely manufactured short squeeze that's carried major indexes most every step of the way higher since last Friday's opening thud. Each move in the sequence, coming more or less at the open of the past three trading days, successively grew more intense than the previous. Today simply was over the top.

So far since 9/23 top, the good guys twice have been able to out-flank this similar maneuver — first last Monday, then again on Wednesday. And it appears they began taking aim once again this afternoon. However, with so much seeming confidence restored today, why not drain as many suckers as possible? Why not keep things levitated a couple days more, withholding any serious supply?

This is a possibility. Likewise alive is the possibility today's resurgent long interest immediately gets taken out to the woodshed. The price-RSI divergence you see above (via red lines) might be warning of increased volatility ahead.

NASDAQ 5-min

The trend-leading NASDAQ Composite appears to be conspicuously lagging. All the more reason, then, to fear the worst. And every measure of the market's underlying technical condition continues to concur...

Fast Money
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