Selling Restraint Raising the Risk of Collapse ~ The Risk Averse Alert

Wednesday, February 09, 2011

Selling Restraint Raising the Risk of Collapse

Supposing that, a financial system living on trillions of dollars in life-support from lenders of last resort — trillions that cannot possibly be repaid under present physical conditions — is, in fact, a financial system living on borrowed time, let's assume, then, every last second available to offload as much risk as possible without upsetting the applecart will be exploited, thus extending formation of what still appears by all technical measures a confirmed "rising wedge" unfolding off late-June 2010 bottom...

NYSE 5-min

So, consider in this light the above, prospective Elliott wave count labeling five waves forming wave c of 5 (whose completion will mark top both to the "rising wedge" forming since late-June 2010, as well as the market's counter-trend rally off March '09 bottom). This view raises the possibility that, the market's levitation might persist a few days more without displaying much, if any, price weakness suggesting collapse is just around the corner.

There are other, prospective Elliott wave counts by which wave c of 5 could unfold, and likewise extend the market's levitation, this notwithstanding the extremely limited upside remaining within the confines of the "rising wedge" believed to be forming off late-June 2010 bottom. For example, another, smaller "rising wedge" could form wave c of 5 itself ... with but its first wave completing at yesterday's close (2/8/2011).

Come what may between now and top, were some explosively disruptive circumstance to rather immediately precipitate a dizzying decline upon the market reaching its summit, thus trapping a majority of interests who then are left with no other alternative than either swallowing some significant loss or holding another decade or more in hope of breaking even, who could be shocked given an abundance of evidence warning of this risk well in advance of its actually coming to fruition?

Ongoing selling restraint whose effect has extended the market's levitation has not, and likely will not, diminish this risk. Indeed, that restraint has persisted makes only more probable the market's subsequent, sharp contraction, particularly were some fear to develop raising the well-justified, yet frightful risk of being the last long interest to reach the exit door...

Fast Money
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