Moral Hazard Fail ~ The Risk Averse Alert

Friday, November 19, 2010

Moral Hazard Fail

What becomes of Ireland is theirs to say. What matters right now is what's done. The bankruptcy of the European Central Bank along with our own Federal Reserve once again is made plain by a terribly vulnerable, private banking system, this a result of failures to properly regulate those failing institutions within their purview — a policy even continuing to this day by schemes whose durability competes with a snowball in hell. These failed agencies are being overwhelmed by insolvency of their own creation. How easily this could be wiped away, leaving but whispers of memories lingering, much like occurred following the Holland Tulip Bubble's bursting.

With harmony of political interests in Europe a great purging in the battle for obeisance between sovereign nation states and borderless slime mold no doubt is assured. This is assuming zombie banks eventually will pop up in, say, Spain sometime as soon as early next year.


The NYSE new 52-week high-low differential is another underlying technical measure confirming five waves up from March 2009. Deterioration we see during formation of waves 4 and 5, again, is typical as an Elliott five-wave advance completes.

Most stunning has been the retreat among NYSE-listed leaders since early-November, right after the Fed served up another batch of Benito Juice (formerly called QE2).


Momentum's divergence at early-November's NYSE Composite peak stands in contrast to what occurred in April. So, the present projection for a steeper fall than that following April top finds technical substantiation. This pending decline targets levels last seen in July '09, and very well could mark but the first wave of a larger, five wave decline to levels last seen in the 1987-1994 period.

Over the coming, holiday-shortened week it appears further consolidation of losses since top probably are in order. Although a recovery challenging peak is not out of the question, I rather suspect the challenge will be to last Tuesday's low, followed by a drift back up completing the market's consolidation and paving the way for a much larger fall.

Fast Money
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