Agitated Sharks Aggressively Risking Calamity ~ The Risk Averse Alert

Friday, June 18, 2010

Agitated Sharks Aggressively Risking Calamity

You have to wonder how the quantitative easing crowd feels about cash- and resource-rich BP proposing a $5 billion debt offering at an 8-10% yield. This occurring, no less, on the doorstep of that previously mentioned tsunami of corporate debt coming due over the next few years is curious.

BP's reported goal apparently is to "restore confidence." But at that yield? Might a better word than "confidence" be panic? (And if this is thought too strong, then certainly doubt. This sense surely was seen among Fast Money traders tonight.)

Might not BP's proposed debt offering also be suspected a case of "push back" after yesterday's kiss of death in Congress? Evidently, Anadarko's CEO finds his company swimming in a shark pool (to say the least).


U.S. Treasury yields on the short end — having stabilized in the panic zone, post-'08, following a multi-year trend to absolute bottom — could be in the midst of reversing higher. Judging by cash- and resource-rich BP's proposed debt offering, higher rates the company might be seen fostering could prove devastating.

Indeed, a credit squeeze might be delayed no longer with a Mass Strike in no mood for more bailout. No doubt, bailout has become a much-hated necessity. No doubt, too, both these reactionary facets were easily foreseen, as are their probable increase as election day nears.

Considering today's debt burden, a backup in rates probably will prove problematic to every liquid financial market globally (most emphatically stock markets). This is particularly so largely because the U.S. lacks a Hamiltonian national bank uttering credit strengthening the physical economy's capacity to create lasting, productivity-enhancing wealth.

Having no separate facility to sustain critical physical functioning is all the more troublesome, because over recent decades much physical economic capacity in the United States has been driven into the ground. This trend only continues with the move to shutdown NASA's manned presence in space. Indeed, the will to destroy the nation's most profound potential to produce at higher rates of technological mastery only appears stronger in a headlong charge imposing destructive conditions so stretching the viability of the physical economy's bloated financial underpinnings as to risk calamity. That's where we are.

An environment where increasing financial claims meet a physical asset base whose wealth-creating potential is shrinking absolutely breeds conditions conducive to a breakdown: one whose tiniest technical manifestation might be reasonably thought demonstrated on May 6, 2010.


I thought it noteworthy that volume registered while the market fell from its late-April peak rivaled volume accompanying 2008's collapse. Something very similar occurred in July '08 (when volume rivaled that in January '08), during what proved but the opening salvo of a large move down.

Much like the market's decline from October 2007 - March 2008 was but the beginning of a still larger move lower, the market's decline from October 2007 - March 2009 is thought the same.

Volume presently rivaling its most extreme during that recent time of heightened market volatility (September - October 2008) presents much the same demonstration of distribution as was evidenced in July 2008 ... and this once again at what is thought the start of a large decline to come.

This condition is made all the more compelling given the similar positions in which both relative strength (RSI) and momentum (MACD) are in. These measures, indeed, can be seen further setting the stage for a steep decline over weeks straight ahead.

SPX 5-min

This is one prospective Elliott wave view of what is thought a five-wave advance from Tuesday, June 1st seen forming wave c of 2 (wave 2 being a corrective wave in a five-wave decline from late-April top).

For now I am assuming the fourth wave of the S&P 500's five-wave advance since June 1st continues forming (much as was thought the case yesterday). A trip down to the range of "the fourth wave of one lesser degree" (i.e. the fourth wave of wave 3: 1090-1106ish) still could develop before the fifth and final wave [up] unfolds to complete wave c of 2.

Fast Money
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