Hopelessly Insolvent (and All Captives) One Day Nearer Extinction ~ The Risk Averse Alert

Tuesday, February 08, 2011

Hopelessly Insolvent (and All Captives) One Day Nearer Extinction

It appears there is some difficulty increasing interest in rights to own wildly overpriced equity whose risk of evaporating under a crumbling mountain of debt is even more pronounced now than three years ago, when lenders of last resort were not so completely exposed as being no more solvent than the banking systems whose integrity over several decades they had been part in destroying with the blind eye they lent to that Wall Street-City of London Ponzi scheme dominating a so-called "shadow banking system" employing the use of leveraged credit securities...


So, let's see. Buyers at higher bid prices are evaporating — this being revealed by persistently diminishing volume of shares exchanged — while now, even the hope these might materialize appears to be fading. All eyes surely must be nervously gazing toward the exits these days.

Now, as you will see, too, long equity hedging during formation of an a-b-c corrective wave up from March '09 bottom decidedly confirms that Elliott wave view of mine presently finding the market at imminent risk of collapsing.

Duly note how put option hedging was more pronounced at the start of wave c (late-June 2010) than at any time during formation of wave a throughout 2009. All the more, too, was put option hedging elevated at the start of wave 3 of c (early-September 2010).

Increased hedging is an indication of a more dynamic measure of underlying strength, such as typically characterizes Elliott third waves. There it was ... right where it should be during formation of wave c of an a-b-c corrective wave up from March '09 bottom.

And now during formation of wave 5 of c? No doubt, long equity hedging was markedly reduced at its start (early-December 2010). Apparently those still riding the "recovery" train feel there is less need to protect their exposure. This is a noteworthy change in disposition, indeed, only the more raising probability that, completion of the market's counter-trend rally off March '09 bottom is at hand.

Of course, foreboding technical circumstance could not possibly impress those among a majority of observers who dare not imagine that, lenders of last resort are bankrupt. Yet an otherwise well-confirmed Elliott wave view is suggesting this subject might become the talk of the town even within a mere matter of days.

Increasing discord on the Federal Reserve Board — although a symptom fitting the moment — largely reveals the institution flush with lunatics, and so an enduring barrier to anything promoting financial stability for as far as the eye can see. Thus probability is raised that, establishing bottom over months ahead somewhere in the vicinity of levels last seen in the 1987-1994 period might prove a painfully excruciating process.

Fast Money
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Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.

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