Run on Equity Approaching ~ The Risk Averse Alert

Wednesday, February 17, 2010

Run on Equity Approaching

Although not necessarily likely, it is nevertheless entirely possible the counter-trend rally marking the second of five waves down from mid-January top ended this morning...

SPX 5-min

Relative strength coinciding with the S&P 500's advance since last Friday might not be "typical," but it sure is fitting an Elliott third wave (in this case wave c of an a-b-c corrective wave from bottom on Friday, February 5, 2010).

Normally one sees RSI weaken during formation of a discrete, 5-wave advance (in this case the five waves of wave c starting last Friday), specifically during the fourth and fifth waves. In this instance, however, RSI is seen strengthening every step of the way higher, particularly starting with yesterday afternoon's narrow, sideways trade (wave iv of c of 2?), and coming to a crescendo at this morning's peak.

Bear in mind this present view might prove incorrect. It is quite possible that, wave c of 2 is yet completed.


Fairly well-exposed these past few months is just how few hands are driving the stock market. Volume during advancing periods has been less than stellar (and growing less so by the day).

The vast majority apparently continue to hold and pray ... blithely ignoring building systemic stresses that, much more likely than not are set to precipitate a run on equity the likes of which no one living has ever seen. With entire nations, currency zones and debt markets set to collapse, the frightful bankruptcy of a global arrangement whose greater components remain leveraged to the teeth — exposing the fraud of statically viewing balance sheets as though, like yesterday, assets can continue being expanded infinitely — likely will come crashing down on the world harder and faster than most everyone dares imagine.

Very few people in the year 2000 were calling NASDAQ a "bubble." Even fewer foresaw NASDAQ's 60% haircut by the summer of 2001. Most everyone was blinded by greed, apparently believing unprecedented performance during the late-90s would infinitely repeat.

The same blindness and greed very much remain a driving force today. Yet the fundamental situation is far worse now because, unlike ten years ago, the lender of last resort is "all in" ... drowning ... under attack ... and weakened.

Fast Money
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