Coffee Anyone? ~ The Risk Averse Alert

Friday, October 15, 2010

Coffee Anyone?

One of the reasons I link to the CNBC Fast Money "Word on the Street" segment at the end of each post is to associate with observations I make the sentiment that day among traders. Well, was not today's trader sentiment a doozie in relation to my outlook for the stock market's collapse!

There you have Joe Terranova talking about the bond market...

"... If you are in treasuries, why are you holding? ... The best trade in the bond market is go out and take a thirty year mortgage."

This was followed by Brian Kelly claiming, "This is one of the better times in the last fifty years to buy a home."

Are you kidding me? When the MBS market threatens to implode?

In a post today titled, "The Impact of Error From Securitization to Foreclosure," Barry Ritholtz states, "At the current stage, we really do not know how extensive the problems are. We could make wild and unsubstantiated conclusions, but we prefer reason and logic."

Yet given the still-fragile state of the MBS market, might not lack of knowledge about "how extensive the problems are" invite such "reason and logic" as incites panic???

And this is a good time to buy a house and take out a thirty year mortgage!

Coffee anyone?

Then, Finerman's fawning over BAC and JPM furthers one's sense that, a remarkably similar complacency toward the prowess of these companies as existed in '08 remains, yet now is rather feistier. I wonder how many fine companies still were well-regarded in 1930, after the crash, amidst the market's bounce, as well as immediately thereafter? I strongly suspect Gerald Loeb has spoken of these, as well as their lovers.

Leadership is the wild card in the coming election. Can it be tamed in deep crisis? Or will deep crisis it tame? Either way, deep crisis is the order of the day. There is no avoiding this! Is not the Fed making this obvious? And now this MBS thing! They say when it's time to sell a bell doesn't ring.


You might recall that, immediately following the market's late-June bottom, as well as that late-August, a relatively few NYSE-listed issues were adding to the NYSE Bullish Percent Index, and effectively backing the NYSE's rather strong rallies off these bottoms. The disparity was most notable as the NYSE neared highs reached prior to these bottoms.

Those issues not adding to the Bullish Percent Index simply were not being sold [and thereby were not pressuring the NYSE Composite Index]. So, although one could conclude (and I did) the market might rise further were laggards drawn in, the die was cast, so to speak, as to the nature of the rally. This dynamic is seen substantiating probability that, the market's advances off late-June and late-August bottoms are but part of a corrective wave retracing the market's decline from April top.

Further testimony to this is seen via the markup drawn above.

At the NYSE's top in April 2010 its Bullish percent index diverged from its top the previous September. Yet during the NYSE's run-up to its April 2010 peak, the relative strength of increase in the NYSE's Bullish Percent Index was more decidedly positive than at any time since March '09 bottom. There was faster-building conviction in the NYSE's run-up, which itself was being positively impacted by fewer NYSE-listed stocks.

And now ... conviction is faster building still, and this while even fewer NYSE-listed issues are providing positive impetus.

Such conviction as proved ill-advised going into April top appears even more so right now. Indeed, the dynamic demonstrated here is extraordinarily fitting that Elliott Wave count of mine you should be familiar with. A fifth wave's top in April and a second wave's top here are confirmed by the NYSE Bull Percent Index showing increasing conviction in those diminishing number of NYSE-listed issues leading the NYSE higher in each instance.

The stage indeed is set for a third wave down. By the looks of things, too, March '09 bottom could be toast [to go with your coffee].

Fast Money
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