Transferring Shares from the Weak to the Weaker ~ The Risk Averse Alert

Monday, January 03, 2011

Transferring Shares from the Weak to the Weaker

A New Year could not change in a day the stock market's vulnerable underlying technical state. Rather only more widely do technical divergences appear with yet another CME-driven squeeze kicking off trading in 2011.

Once again not forthcoming, too, are buyers willing to assist those impaired, capital-starved enterprises whose need to raise cash in advance of what is sure to become a refinancing tsunami is a present reality sharing a trait with yesteryear's NASDAQ Y2k bubble: everyone senses the peril, but no one says a word.

No worthy buying capable of sustaining an advance is produced on a day when, beyond the first five minutes of trading, nothing is gained (something of a multi-month trend, indeed). Rather, capital raised on the back of fewer takers (see volume) suggests equity largely is concentrated in weak hands whose vaunted backstop is an illusion.

So, the new year begins just as it has persisted since March '09 bottom, with shares being transferred from the weak to the weaker. These alone stand to do battle in a race for the exits, as each new measure venturing to maintain their trusted backstop's supposed credibility only increases the depths to which systemic insolvency reaches. Thus, the stock market's technical weakness is supported by quite vulnerable fundamental circumstance whose portent makes all the more likely a sudden and calamitous collapse.


Relative strength and momentum divergences (relative to early-November) occurring at the upper end of respective ranges each measure has reached since March '09 bottom lend support to the view that a rising wedge forming off late-June 2010 bottom is near completing.

Having recently suggested that, consolidation of early-December's gains might exhibit an upward bias the view above ventures to depict this possibility. Yet to develop, though, is that anticipated momentum hit steeper than that accompanying late-October's sideways trade (such as would offer a further display of underlying weakness fitting this moment in the rising wedge's development). This hit could develop over the next couple weeks and likely alter the upward bias of the market's consolidation thus far since its early-December lift.

So, completion of the prospective rising wedge forming off late-June 2010 bottom still appears some days away.

There may be an increasing scarcity of weak suckers willing to pony up the increasing price for a piece of a pulse coming from the tail of a mangy dog, but the fiddlers now are those financial enterprises among the white shoes whose leverage already seals their doom. There simply are no shortage of threatening exposures waiting to tip the applecart and reveal the utter worthlessness of "assets" that today are marked to a fantasy impossible to sustain without increasing doses of pain whose impact can only draw a greater weight of outstanding financial claims into that already burgeoning, "hopelessly insolvent" bin presently stuffed with mortgage securitizations.

Consider today's bulls, then, no different than Y2k's tech die-hards: stuck in the moment and insensitive to astronomical — indeed, historic — risks. This circumstance is most foreboding at a moment when the weak have only the weaker to help sustain the illusion of solvency of the post-Bretton Woods orgy filled with fantasy about the efficiency of free markets whose truth has placed a great deal of physical and financial wealth in grave peril...

Fast Money
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