Bearish Actions Speak Louder Than Bullish Words ~ The Risk Averse Alert

Friday, January 14, 2011

Bearish Actions Speak Louder Than Bullish Words

That line of thinking suggesting 2011 will be a year of increased mergers and acquisitions has found its genius dot connector claiming that, at hand is a golden age of banking, because for the first time in history "banks will be bringing out new products which no one is going to like but which are going to be very profitable for the banking industry." Talk about fantasy. There isn't enough confidence in the universe.

Trouble is all that "cash" on bank balance sheets remains gravely at risk. No doubt, "the market" already rightly fears this...


Look at it this way. If banks and financials — both groups having long been laggards (now turned the market's leadership as of early December) — are looking at a future full of blue skies and sunny days, then where is the added excitement anticipating the positive impact a supposedly well-capitalized banking system would have on business generally? Where is such increasing accumulation as would register with a rising number of NYSE-listed issues reaching new 52-week highs?

Might all that cash on bank balance sheets in the end only facilitate the financial system's further, chaotic consolidation, as seems a likely possibility given the depth of profound, ever-increasing vulnerabilities its leading institutions commonly face?

Consider, then, further evidence revealing that, in the current iteration of the market's levitation there is yet again no sign suggesting stocks are being accumulated by strong hands...


Rather than long equity positions prudently being hedged with put options (one of the habits of strong hands), we have fees being generated with call options sold to those who to some degree probably will gladly exercise and absorb some of the equity that, option writers acquired as recently as late-December, whose purchase principally is part of a technically driven venture seeded by gobs of [hyperinflation-feeding] liquidity seeking a momentarily sensible investment objective. Judging by today's relatively out-sized ability to feed call options to a well-cultivated, bullish captive interest, those weak hands whose technical machinations alone have sustained the market's levitation over the past year are tipping their hand and revealing a decided unwillingness, or, more likely, inability to sustain the market's present advance much further.

This dynamic more or less has characterized the market's entire lift off March '09 bottom. Its persistence all the more appears an ominous indication that, stocks are not being accumulated, particularly when seen in light of their ever-diminishing demand...


Successive advancing periods since March '09 bottom continue being accompanied by a shrinking volume of shares exchanged. Yet the "wall of worry" the market is said to climb requires precisely the reverse condition. Worry breeds fear such as precipitates increased selling, which in a bull market will be met with willing buyers absorbing increased supply even at higher prices.

No wall of worry is being climbed off March '09 bottom. Thus, volume presents no evidence suggesting stocks are being accumulated by strong hands, then. Rather, the market increasingly appears protected by a blanket of complacency. Diminishing volume registering at ever higher price levels reveals this. Without a doubt, too, this condition only makes today's elevated bullish sentiment all the more conspicuously misplaced.

Fast Money
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