Poisoning the Lemonade ~ The Risk Averse Alert

Monday, May 17, 2010

Poisoning the Lemonade

It's possible that, five waves down from last month's top completed today...

SPX 5-min

The fifth wave (a so-called "failure" per the Elliott Wave Principle) would be seen forming from last Thursday through today. Of course, these five wave down (were this view correct) are thought but the start of a much steeper decline yet to come — a first wave of five larger waves down. Thus, a brief period correcting this initial move lower from last month's top might be in store this week.

Or, it could be that, the fourth of five waves down from last month's top still is forming (with a move back up to the upper end of last week's range pending).

Or, today's turnaround might be all or part of a second wave of five waves of a larger third wave down from top (in keeping with last week's view that, the second wave down from top might have formed a so-called "running correction" and finished on Thursday).

Relative strength diverged today relative to Friday, so possibility of some short-term bottom being in place here has some technical substantiation. Whether this proves meaningful enough to forestall a challenge of May 6th's low remains to be seen, though.

(Yet the longer that day's low goes unchallenged, the stronger should become one's sensitivity toward evidence demonstrating desperation in the ongoing fight for a hopelessly bankrupt cause.)


Personalities better cheerleaders than journalists can dig up whatever "technical" explanation for May 6th's gassing as is fitting their bottomless capacity for making lemonade out of lemons ... yet the fact of the matter is an entire month's gains (and then some) are not lost in a single day's trading in the midst of some bull run. Quite the contrary at this particular moment ... far, far removed from the far less leveraged 1980s.

Throw in volume rivaling records set during the collapse of '08, and you have the makings of a really serious development. Thus, those busy beavers who for many months had been distributing shares in slow fashion to those for whom time does not wait for any length over a quarter (so-called portfolio managers) at best might have one last opportunity in a relative moment of calm to finish their deed before any new threat of game-changing regulation makes an uphill charge.

So, banks are at a "stress test" threshold where they need to recapitalize ... again ... says John Tobacco. Hmmm. Where do you suppose they'll be raising said capital?

Judging from news that Soros dumped a huge stake in Citigroup ... said capital just might prove exceedingly scarce.

Fast Money
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