In Fearless Weak Hands We Trust ~ The Risk Averse Alert

Wednesday, August 17, 2011

In Fearless Weak Hands We Trust

For the longest time the market's greatest strength — a virtual sellers strike — was enough to keep an increasing buyers strike from forcing the market lower. So, seeing this buyers strike persisting following this month's thumping, there's every reason to fear the worst, particularly given the market's still decidedly negative technical state...


That volume quickly has dropped to a relatively muted level once again suggests the same weak hands whose buying strength dried up going into July 7th peak remain incapable of pressing their bets and mounting any effort to defend their positions. Those left holding the bag during the market's recent decline have a dilemma, then.

Undeniable is truth the market sold off for good reason. With risks to leveraged interests increasing through threats both real and perceived, a heightened impetus to raise capital simply met a stock market dominated by weak hands. Thus is the magnitude of this month's swoon explained.

Since these risks are doomed to grow with the U.S. Congress' Joint Select Committee ready to rout the lender of last resort, weak hands, as well as interests left holding the bag for scrambling, leveraged players, present a dangerous combination for as far as the eye can see. So, the market's remarkably weak technical state right now rightly might be thought all the more foreboding, then. Rapid resumption of the recent thumping is by no means not out of the question.

What's more, widespread conviction that, the worst of this month's bloodletting is over — this absent any sign a well-hedged long interest stands ready to defend its position — raises probability that, end of the market's sorrow more likely is nowhere in sight. In fact, merely anecdotal evidence of this misplaced conviction, indeed, finds objective evidence demonstrating its presence rather conspicuously displayed...


The relative manner in which the best of the U.S. stock market's more speculative issues are holding up is offering conclusive evidence that, the general consensus among those long equities is judging the market's recent setback as signaling nothing foreboding on the horizon.

Yet continued faith in these top NASDAQ-listed issues rather should be judged only the more suspect given the long-noted, incredibly weak underlying technical backdrop on NASDAQ. So disparities under the covers add to the weight of evidence revealing disparities on the surface, shown above via the NASDAQ 100's relatively stronger performance versus the S&P 500.

The simple takeaway is this: the market's risk over the immediate horizon could be even greater than was implied here on Friday. The depth of selling upcoming could blow through identified support as though it were non-existent.

Weak hands otherwise thought leading white shoe firms on Wall Street must first step up to the plate with a well-hedged attempt at forming a bottom. Anything short of this leaves the market at risk of suffering something far worse than I and a vocal consensus of far more sanguine interests presently is assuming.

Fast Money
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