Golden Slumbers Mark an Approaching Crash ~ The Risk Averse Alert

Wednesday, June 02, 2010

Golden Slumbers Mark an Approaching Crash

If ever there were a song unintentionally parodying the present moment, this one is it...

These past couple days CNBC has been singing the Alan Schwartz lullaby as though the way to get back homeward might be more easily found with signs embossed with a circle and line drawn through it. Be it big bank failures, the Euro-zone's demise, the foreboding state of U.S. and U.K. credit, do not cry, sleepy darlings, let golden slumbers fill your eyes. Well, not me because, technically speaking, something's not right... $CPC There have been a couple, notable prior instances when the momentum of put option hedging suddenly went through the roof following a market sell-off, indicating that hedged, long equity support had formed. These I've marked above with red dots. Yet the very fact the momentum of put option hedging was surging demonstrated there were underlying problems so serious, not even a marked increase of hedged buying support could keep the market from falling further. This was the lesson delivered in August 2007, and then again in October 2008. Curiously, a similar setup is seen forming right now, too. The question is, then, could this be signaling an imminent swoon? Here's a chart of the S&P 500, so you can get a better sense of this... $SPX Duly note the similar, negative position both RSI and MACD find themselves now as they did in those two prior instances. Also take a look at this from the perspective of the Bullish Percent Index, whose "oversold" position last week was thought to be increasing the likelihood the market would bounce... $BPNYA Suddenly, conditions do not appear so "oversold." They rather seem not very different than those two prior instances. They rather appear just plainly negative. Given this background, then ... and a fourth straight day spent in an ill-disguised circle jerk conducted amidst a vast majority apparently complacent in their golden slumbers (volume tells all) ... the present danger is clear. Collapse, indeed, might be drawing near. Fast Money
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