Stating the Obvious: Summer is No Time for Wearing Wool ~ The Risk Averse Alert

Wednesday, August 04, 2010

Stating the Obvious: Summer is No Time for Wearing Wool

Suggested at the start of the present advance off June 29th bottom was the likelihood that most observers would be lulled to sleep. As you listen to comments many observers make, you would think it was early 1999.

Unfortunately, "once burned and twice shy" is a matter of fact revealed by muted trading volume. Those who today are complacent ignore this condition at their own peril. Such ignorance is the scourge of unwarranted hope it appears.


RSI displays a "herding the sheep" look ... much like mid-March to mid-April top. This is especially significant with momentum challenging (and possibly soon bettering) its April peak.

Don't get me wrong. RSI's slow, balanced ascent generally is a positive, revealing a healthy balance between buyers and sellers. Yet with fear waning (where are sellers?) and the present risk appetite anything but voracious (where are bidders?), you have to conclude RSI is revealing sheep well-behaved standing in line for their shearing ... all too unaware of how the hammer shall fall of its own weight.


You might say it is early-April at the CBOE. By the looks of this measure there is not a lot of upside remaining.


Briefly... do buyers of U.S. Treasuries sniff another Lehman Brothers bankruptcy? As you can see, the relative performance of the 5-year significantly mimics the run-up to Lehman's demise.

That being said, though, consider the 20% markup on a five-year Treasury. Quite steep.

Thus, it seems the pig sheep set, were these to rush into Treasuries following some upcoming, seismic event, soon after their shearing in equity markets might be in the right place at the right moment for slaughter in the bond market, too.

Fast Money
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