Unfathomable Sinking Ahead ~ The Risk Averse Alert

Wednesday, October 13, 2010

Unfathomable Sinking Ahead

When you read, "The Wheels are Coming Off in MBS Land..." you know this is not your grandfather's financial crisis. And when you realize MBS is the metal from which is made the former "lynch-pin of the U.S. economy" — structured finance (according to John Lipsky) — you begin to appreciate that, this is not even your three-year-old child's financial crisis!

A stunning reversal of fortunes appears imminent, as top to the market's counter-trend rally off late-June bottom draws near...

OEX 5-min

Wave 5 of c is taking form with typical RSI configuration helping identify its five component waves.


Who, indeed, has been anticipating a volume spike, like today's (this relative to volume registered over the duration of the market's advance since late-August bottom), signaling an impending, negative turn of affairs ... much like happened at April top?

Given all manner of glaring technical weakness accumulating for as long as the market has been levitating (pick your start date: since 1998, March 2009, September 2010) today's volume spike is seen indicating the rally off late-August bottom has just about run its course ... and a [bull] trap door is about to be sprung.

So, we see five waves down from April top and three waves up from late-June bottom. What next, then, will be?


Well, a rather interesting risk pricing configuration similarity, pre-Lehman and now ... revealing an enduring complacency toward systemic risk at moments when it is rearing its ugly head ... suggests that, something much bigger than the meltdown following Lehman Brothers' bankruptcy — say, a chaotic crash threatening the market's normal operation (something the crash of October 1987 came very close to achieving) — could very well be at hand.

Fast Money
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