Awaiting the Next Link in the Bankruptcy Chain ~ The Risk Averse Alert

Friday, February 26, 2010

Awaiting the Next Link in the Bankruptcy Chain

The past six months afloat might likely continue for as long as possible ... particularly given how far credibility of the most vaunted financial institutions has fallen from zenith (which is not a good place to be while the alpha around you-ro relentlessly implodes). In other words, the spirit of things right now simply appears get while the getting still is this good, because the world as we once knew it is no more.

Every new day, it seems, delivers some truth further confirming the riskiest of financial assets are lesser bargains amidst an excruciating debt whose burden still grows ... though today on favorable terms, and tomorrow who knows ... all is amidst a physical capacity increasingly facilitating hoarding rather than such productivity-enhanced activity as might sustain the viability of grossly swollen obligations, let alone that colossal mountain of derivative financial claims whose greatest present value could only be to detonate some crisis or another likely furthering yet another swindle ... the very sort of thing whose likelihood most mainstream folks still believe a distant, if not remote, possibility.

Not me. Technically speaking, there's fine reason to fear the Bear-Lehman-AIG-Fannie-Freddie chain could soon lengthen. Look all around. Then, weigh denial.


So, the 200-day moving average could prove a pivot point over days/weeks ahead. For the time being, given the past six months' time-buying accomplishment, expect support. Were the next link in bankruptcy's chain weighed in pounds, say, then the 200-day might yet give it up with a gap lower. This prospect I mentioned a few weeks ago. At this point, too ... and in keeping, again, with the past six months ... it seems prudent to suppose any move below the 200-day moving average might follow with recovery right back to it.

Consider this prospect in light of Wall Street's Christmas present to the sucker camp, offering record sums of hopelessly insolvent bank equity. Of course, getting these secondaries to fly required support ... which willingness apparently lasted all of a month. Then, come mid-January some support went bye bye. An effort maintaining the illusion of value in the banking system has commenced ever since.

This sort of financials-directed action (occurring on an increasingly down-sloping trajectory) might accompany broader market moves over the immediate period, and serve to regulate stock index performance in relation to 200-day moving averages, as the market turns lower reasserting the bearish trend begun October 2007.

SPX 5-min

Following up on yesterday's brief comments it appears relative strength divergence likewise is keeping to Wednesday's script by the manner in which continuation of Thursday's lift is accompanied by a weakening RSI.

So, today the stage was further set for a fall I suspect will find support around the 200-day moving average. Whether there is a little more upside remaining to the bounce of the past two days and whether last week's peak holds or not, we should see weakness grow over the immediate period.

Fast Money
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