Outright Fraud for Dummies, by BAC and C ~ The Risk Averse Alert

Wednesday, December 09, 2009

Outright Fraud for Dummies, by BAC and C

One need not look hard to uncover a wealth of technical evidence supporting a negative outlook toward the stock market and justifying a cautious stand decidedly risk averse. A wise move, too, because let's face it, all kind of fantasy is being dreamed up as the broad market levitates, with the crap growing so thick that, large banks, insolvent many times over, are able to get away with what effectively amounts to authorship of a new book for dummies: OUTRIGHT FRAUD!

I'll spare you the color commentary today (on large banking institutions abusing dumb fund money while Congress self-immolates), and dive right into technical details highlighting the big picture, NYSE versus NASDAQ...


Market peaks in October and November coincided with a successively diminishing percentage of NYSE-listed issues bullishly postured. At last a divergence in this technical measure! By no means, however, is this a "first sign" of trouble presented here.

Given the absolute extreme the NYSE Bullish Percent Index reached there are a couple takeaways...

First, a global financial system at the brink of collapse, rescued by the lender of last resort in a flood of liquidity, does not justify bullish prospects for 85% of NYSE-listed issues. This rather smacks of unjustified complacency — indeed, irrational exuberance.

Which leads to the second takeaway...

Technical conditions during formation of an Elliott 2nd wave (or b wave) often better conditions before the 1st wave unfolded. What you see above is a demonstration of this. Thus, we have confirmation of a view claiming the stock market's advance off March '09 bottom is but a counter-trend rally in a larger corrective wave [down] that began in October 2007.

Added confirmation is given by the same measure on NASDAQ-listed issues...


The trend-leading NASDAQ — whose acid test reveals the presence of animal spirits necessary to sustain a broad-based advance — finds its underlying technical condition in absolute terms lagging the NYSE. Thus, with a smaller percentage of NASDAQ-listed issues bullishly postured we find animal spirits rather more subdued. Were the advance off March '09 bottom thought likely to persist indefinitely animal spirits should be growing wilder. Yet precisely the opposite is happening. This, broadly speaking, is decidedly bearish.

In relative terms the picture presented on NASDAQ appears mixed, at least at first glance. Yet the overall message conveyed is conclusively bearish, much like the case on the NYSE.

Most obvious is the fact that, the percentage of bullishly postured, NASDAQ-listed issues has fallen below its 200-day moving average, as well as its low set in July. On both these counts, then, the trend-leading NASDAQ is seen pointing the way lower.

Much like the NYSE Bullish Percent Index, the NASDAQ Bullish Percent Index blew out its peak in '07. Thus, the same "irrational exuberance" can be seen here, too. This conclusion is furthered by the fact the NASDAQ BPI's 200-day moving average is besting the peak it reached in 2007.

Yet NASDAQ's lag versus the NYSE also is seen by its BPI's 200-day moving average trailing in absolute terms the same on the NYSE. Again, were animal spirits present this in all probability would not be the case. Further confirmed by this, then, is probability the market's advance off March '09 bottom is but a counter-trend rally in a larger correction, rather than the start of a new bull market.

One final note...

Chances are elevated prospects for an imminent, spectacular market collapse await a turning down of respective 200-day moving averages for both NYSE and NASDAQ Bullish Percent Indexes, much as occurred in the latter half of 2007. So, keep an eye out for this because the market's present levitation is likely to result in a decided move lower as a consequence of fewer issues supporting respective composite indexes at slightly higher levels reached over recent weeks and months.

Fast Money
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