Debt Deflation Trade Gaining Steam ~ The Risk Averse Alert

Wednesday, May 04, 2011

Debt Deflation Trade Gaining Steam

This can't be good...


The NYSE Bullish Percent Index's deterioration presents two recent instances finding the measure diverging from the NYSE Composite...


Nothing like this ever occurred when the market was levitating from mid-September 2010 to mid-February 2011. Considering near-term possibilities, then, another heaping helping of humble pie specially made for this giant bear does not appear on the menu any longer, at least for the time being.

Flash back to prospect raised sometime during the past month wherein the fourth wave of five waves up from late-June 2010 still might be in the process of forming (as opposed to having ended on March 16th). This possibility was discussed in the context of such measures as momentum (bottom panel) and the McClellan Summation Index. Neither of these have deteriorated to levels worse than were registered during formation of the second wave (ending late-August 2010), which otherwise is typical. NYSE Bullish Percent Index weakness suggests this deterioration could be upcoming.

Pushing out the end of wave 3 of (c) to early-November 2010, then supposing wave 4 of (c) has been unfolding since (possibly forming a contracting triangle with an upward bias) certainly presents a more typical looking Elliott wave. However, such a prospect also would seem to push out the end of wave (c). Yet there's also an ever-strengthening technical case suggesting the consequence of this prospective view might succeed only in buying a little more time ... that any further advance off March '09 bottom is likely to be constrained.

After all, ever since last week's Fed press conference the fast approaching debt deflation trade — the projected detonator of either Glass-Steagall, or Weimar America — appears to be gaining steam as we move closer to the end of QE2.

Fast Money
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