The Voice of Spectacular Collapse ~ The Risk Averse Alert

Wednesday, September 22, 2010

The Voice of Spectacular Collapse

This seems as good a time as any to embrace the spirit of coming chaos, because there is sufficient reason to believe a chaotic collapse could be just around the corner...

That's Ben Lichtenstein of Trader's audio calling the trade on the CME in S&P 500 futures during the May 6, 2010 "flash crash." (For a transcript of Lichtenstein's call, see comments here.)

Whether what serious bout of selling likely to develop over coming weeks will simply retest March 2009 lows or smash right through them is unknown. Either way Ben's voice should get another great workout.

The pullback so far from Tuesday's peak appears a corrective wave. This wave could extend lower to the range marked via red parallel lines above, or continue with the same upward bias (levitation) along the green trend line indicated above.

Once this suspected corrective wave is completed a final lift to the very precipice (marginally higher than Tuesday's peak) is thought likely to develop. What technical weakness already apparent across several measures probably will increase, as well as broaden with further divergences entering into the picture. Thus, the stage will be perfectly set for the stock market's collapse.

This probably is a good time, too, to make note of my assumption that, the corrective wave forming since October 2007 is at the same level as that which formed from 1929-1932. Presently unfolding is the fourth wave of five waves up since the start of the industrial revolution in the United States (mid-19th century). The 1929-1932 collapse is seen ending the second wave of these five waves up.

As is typical, technical conditions during formation of a fourth wave generally will deteriorate from those accompanying a second wave's formation. Already we have seen this tendency when in 2008 the percentage of NYSE-listed issues hitting new 52-week lows smashed through all prior records.

The coming collapse should be just spectacular. Whether this might be imminent simply is better suspected given the lesson of 2008 when the magnitude of selling far exceeded expectations.

Likewise, whether some manufactured geopolitical head fake might play a part in this is possibility one ought be aware of given that, we are in the midst of a power grab over finance (and by extension, political influence) in an era when "controlled disintegration" (a.k.a. "quantitative easing") clearly is the policy response to the end of the Ponzi scheme that was the securitization market.

Fast Money
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