"The big risk we face now is that banks are going to over-correct and not take enough risk ... We need them to take a chance once again on the American economy. That's going to be important to recovery."
—Treasury Secretary Timothy Geithner, Meet the Press, NBC, 11/1/09
Inflate or Die. Even the Treasury Secretary knows this. With this statement, too, is inferred claim that, were the economy to collapse, the cause would be beyond Treasury's power and ability to stop. This sort of pronouncement is better called "CYA."
So, where is the Congress? Fixing barn doors about twenty years too late, while at the same time fixing to gouge grandma, pretending wild horses long-escaped can be enticed back to the ranch with a fat insurance "industry" bailout. In other words, matching Treasury's CYA ... fantasizing that with revelation pigs can fly, so too can health care "reform."
The Romans might have known how to put on a circus, but did they ever entertain their masses with such a full house of clowns? There's but one way these days U.S. leaders appear ahead of the curve: CYA. They got it down.
And where fanciful thinking meets as luck would have it... wave 2 of iii (of an initial five waves down from top on 10.23.09) might see a lift something like what's drawn above. And if not that, then wave 2 of iii might form another "running correction" like wave ii, but with even greater downward bias.
Given the trend thus far in this initial leg down from top, a rally lifting RSI toward extreme buy-side readings (near 80) might unfold just prior to wave 3 of iii sweeping upon the scene in a flurry of selling.
The tour of various technical readings presents a picture reminiscent of the latter half of February '09 ... just prior to a third wave of a third wave unfolding (wave 3 of c of B of (B)). Thus, what in some circles probably is perceived an "oversold" condition presently is instead seen revealing the greater depth to which underlying weakness is come, suggesting the floor under the market — weakening for months — has been transformed into thin ice holding far too many capital-starved pigs above.
Any bull, then, should take a cue from Treasury and Congress...
CYA.
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