The Prechter Freak Show ~ The Risk Averse Alert

Tuesday, July 06, 2010

The Prechter Freak Show

What do you get combining prospect put forward in "Expecting the Unexpected" with the view presented in "Selling Exhaustion Prerequisite to a Bounce?" That's right, you get a day just like today...

OEX 5-min

Last Tuesday's thumping — resulting in late-May's and early-June's OEX low at around 473 being taken out — has been followed by a brief period demonstrating how yesterday's support is now become resistance. Indeed, today's best pressed against this only to be turned away.

Now, it stands to reason that, those brave bottom fishers of yesterday (late-May, early-June) might today be a bit more uncertain and fearful ... so, opportunity to lighten up probably was taken this morning when near break-even could be had. These, then, stand as marks to whom shares can be sold should today's resistance once again become support, as seems likely sometime over days ahead. Having already proven a willingness to bottom fish, some positive demonstration once again confirming reason to be long is likely to be bait that, in due time is taken.

In the meantime, however, those whose technical necessity for putting a bid under the market, such as places a bulls-eye on their head, were targeted with this afternoon's swoon. Judging by how the market went out, the aim taken hit its mark.

Yet considering today's relatively more subdued result here in the U.S. in comparison with Europe (in particular) and Asia, chances are overseas trading going into Wednesday's U.S. open will be soft ... putting those marked for a shakedown right back in the cross hairs aiming yet again to force their bid.


Well, at least first signs of downward momentum stabilization materialized today. Seems like a whole lot of going nowhere — something like happened immediately after early-February bottom was established — might be in order here.

All the table pounding tonight during CNBC's Fast Money "Word on the Street" whining about analytical reasons to be bullish here, as though the shadow banking system is at the cusp of inflating another historic bubble, seems unlikely to receive immediate gratification.

Nevertheless, there is technical basis for supposing a bounce is near. Yet the view here only is that, the bigger the bounce — the more technical in nature — the sooner we hear Doug Kass saying, "Welcome to McDonalds, may I take your order?" In the not-too-distant future — quite possibly well in advance of the end of this year — March '09 lows look to yield like a stick of soft butter to a hot knife.

In my twenty-five years I have never heard so many people freaking out about a forecast from Elliott Wave International's Robert Prechter (Dow 1000). Indeed, if March 2009 truly were believed a "generational low," then Robert Prechter's outlook rather would be uniformly laughed at, than contemptuously scorned.

Why the freak show? My guess is yesterday's belief the shadow banking system could be revived by a deep-pocketed backstop is running into those many unmistakable vulnerabilities as surely must provoke moments of considerable doubt among such fools as confuse great walls of money with a once great industrial economy — indeed, the greatest the world has ever seen. Risk of a spectacular leverage unwind — albeit still thought an outlier — is revealed on the minds of those bull wannabes who see Prechter upsetting a precariously balanced applecart.

Fast Money
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