Fantasy Dies Hard ~ The Risk Averse Alert

Thursday, July 15, 2010

Fantasy Dies Hard

First impression of all things financial, politically connected... Alan Schwartz goes to Washington. That's it. The message from our nation's capital is everything's fine here in fantasy land where wet noodles have no choice but jump back in bed with a monster created by their own hands.

History suggests an oppressive force accommodated will be back again with hand out sooner than most imagine. I would expect the same this time. Indeed, accommodating a field of hapless giants amidst a hopelessly bankrupt system must sanction chaos. The trend is your friend. Ask Barclays.

So, to the ages old question, then, asking, "Which came first? The chicken or the egg?," answer Uncle Sam clearly has given. It is the chicken.

But enough about fantasy land, where representatives in Congress masquerade as well-connected European parliamentarians! Back to reality of pending financial collapse, wherein the healthy now are legislatively sanctioned — set up — for sacrifice to the diseased...


It seems the contrived game drawing in long interest to whom shares can be distributed possesses room for expansion. In other words, we could see a good bit more call option writing with all due CME juice to follow, extending the market's advance.

The extent to which this operation increasingly succeeded over the past year and satisfied the intentions of strong hands distributing shares is revealed by the line drawn below the CBOE Put/Call Ratio.

Duly note, too, divergence typically registering when the market tops. Look for this when wave (c) of (2) is nearing its completion.


Present technical circumstance bears similarity to late-February. RSI has taken to the buy-side of its range and held its position in strength, while MACD simultaneously has made a strong turn higher (although remaining on the sell-side of its range, much like late-February).

Yet it also appears momentum's strong upside reversal might be imminently due for a cooling period, though — something bringing more sustainable balance. So, over the next several days we more likely might be treated to a wash — sideways trading.

A couple differences, now versus late-February, deserve notice. One is that MACD registered a positive divergence prior to the market's rally off July 2nd bottom. Most immediately, this might be seen exciting the early bid and even precipitating the second notable difference, now versus late-February: such relative strength imbalance as one might better associate with a fleeting advance, rather than a sustained charge higher, such as occurred off late-February bottom.

This latter consideration ought be contemplated in the context of a far larger number within the financial and political arenas who persist in their witless worship of the dead. These might be hyper-charged now to jump in. Thus, present technical imbalances might widen further. Wave (c) of (2) might rapidly rush to its end, rather than slowly step higher, as occurred throughout March.

Imagine increased excitement precipitated by a strong move higher from here. Think of the suckers whose number might swell more greatly upon any pullback following rapid completion of wave (c) of (2). These likely will be playing what is believed a correction in a larger move higher. Their reward soon following still looks to be slaughter...

Fast Money
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