Bend Over, Bull... ~ The Risk Averse Alert

Thursday, February 18, 2010

Bend Over, Bull...

Woefully outmatched by the capital-starved monster it created, the bankrupt Federal Reserve's after-hours move to raise its discount rate could only capture the attention of that swollen number of saps who believe a positive fundamental basis for owning the riskiest financial assets of all is floods of liquidity transferring to the lender of last resort leverage over a collapsing physical asset base.

What, then, should one make of a thoroughly discredited enterprise (the U.S. Federal Reserve) acting in an entirely insolvent environment (the global financial system) amidst an audience who is terribly slow to catch on to reality that, there is no possible way to indefinitely sustain profound imbalances built up over the past several decades?

This, my friend, is the stuff historians will cite in commentary on the madness of crowds. It is the very prerequisite condition making collapse in the value of risk assets a virtual certainty.

Surely, even today, there's continued confirmation that, madness rules the moment...


Judging by persistently diminishing volume of shares traded during this week's strictly technical lift higher, there are no shortage of believers in a status quo that is as dead as Elvis. Such are the likes who hold to current long positions rather than increasingly offer them up for sale. Having been given many months in which to reduce their exposure, the vast majority instead insists the worst is over, even attributing the Fed raising its discount rate as testimony to this.

Yet the fact of the matter remains strong hands have been distributing shares, not accumulating. This fundamental reality is objectively proven once again this week, much as it has been over the past year and the past decade. Were stocks, indeed, attractive, they would be bid up on increasing volume of shares exchanged. This goes as much for the broad market as it does financials (no matter the fact billionaire hedge fund managers are buying, and thereby demonstrating that, Peloton Partners truly was no anomaly).

Likewise, from an Elliott Wave analyst's perspective the position in which the market presently finds itself is objectively judged precarious...

NYSE McClellan

Here we see Elliott Wave behavior typical of a second wave down, where in technical conditions rival those at top, before the first wave down unfolded. This is revealed by the NYSE McClellan Oscillator.

Yet, too, does the NYSE's McClellan Summation Index present a foreboding configuration just prior to a third wave down unfolding.

NASDAQ McClellan

And there is your so-called "leadership." First, by NASDAQ's McClellan Oscillator the presence of faith-filled idiots is duly represented. This conclusion is no stretch of the imagination, either, given how NASDAQ's McClellan Summation Index reveals technical conditions supporting NASDAQ at present levels are decidedly negative, and this after having been weakening for months on end.

Indeed, were there a picture worthy of sending to bullish analysts with the caption "bend over," this one is it.

SPX 5-min

In the [unlabeled] five waves forming wave iii of c of 2 we see more typical RSI accompaniment (as opposed to the possibility mentioned yesterday). Awaiting, then, is such relative strength weakness during formation of wave iv as exceeds that registered during formation of wave ii. Subsequent to this expect one final lift higher ... then kaboom.

Oh, those crafty, strong-hand shorts do skillfully work their deception keeping prices afloat in an effort to bring idiot pigs to joyfully squeal in resounding chorus while the King of Swine (trademark pending) is prepared for slaughter...

company chart: GS

And so, now, you may answer in the affirmative when asked: Have you seen the little piggies crawling in the dirt?

Fast Money
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