See No Evil Says SEC Throwing a Hail Mary ~ The Risk Averse Alert

Monday, April 19, 2010

See No Evil Says SEC Throwing a Hail Mary

This today from Barry James of James Investment Research...
In June and July of 1987 we also saw a 7 week market advance. In fact, I remember preparing our "Time for Caution" study in June. Back then, we got a similar response to our caution that many are having now. We know we aren’t right all the time, and even though that 1987 study was met with skepticism, we would have been more correct if we had written "A Time for Panic." Still, our balanced accounts fared well that year with double digit gains in spite of the market declining 40% in 40 days.

Why do we think it is still a time to avoid the current band wagon? First, insiders are selling at an alarming pace, about 25 shares for every share they purchase. Second, to quote Jason Zweig, "Investments don’t become more attractive after prices go up." Third, what good news there is, it is already out, be it earnings or economy. Fourth, enthusiasm is running too hot for our blood; the VIX was recently at levels seen at the market peak in 2007. In addition, the Put Call ratio and 76% bullish sentiment readings are better signs of a mania than a market bottom.
I don't know about "investments [not becoming] more attractive after prices go up." There is a case for disputing this point. Much depends on how strong hands are positioned.

Neither would I claim "what good news there is, it is already out, be it earnings or economy." On the earnings side many a financial firm and bank stand as living proof that, mud possesses greater transparency (allowing any fairy tale to be spun for the sake of sound appearances). Per economy, there is but one aspect that matters: private sector capacity to infinitely print money ... a power that lies frozen in the dead securitization market. Everything else "economy" built upon a foundation of grotesque leverage is but another functional fairy tale, wherein with one turn of the page awaits another nightmare. This was the lesson of 2008 whose story is not ended.

The bear case stands on a dysfunctional credit system existing atop a collapsed physical economy. Who better than insiders would understand the practical consequences of this condition?

Yet in keeping with a fairy tale theme are suggestions the SEC is throwing up a "Hail Mary" in leveling charges of fraud against Goldman Sachs. "See no evil" strikes again, cultivating a climate conducive to offloading more dead equity. Sly dogs.

SPX 5-min

So, in light of a relatively subdued performance in all things widely-held (in particular those components of the Dow Jones Industrials) ... performance of broader indexes (like the S&P 500) compel a view suggesting but a first wave of five waves down unfolded over the past three days.

This presents no meaningful change to the Elliott view presented Friday. A fourth wave (complex in form and with a downward bias, alternating in complexity and bias from the second wave) of five waves up from early-February bottom is seen unfolding. The still ongoing counter-trend rally off March '09 bottom could endure for some few-to-several weeks more, it appears.

Fast Money
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