Pigs At Work ~ The Risk Averse Alert

Friday, August 05, 2011

Pigs At Work

Maybe I underestimated the will of that hapless bunch of fascist leftovers from the last century (today running the ECB with the same old money over life every day of the week and twice on Sunday illness) in their resolve to fake the solvency of the European banking system.

Or maybe it's just that, the crash thought possible today did not materialize simply because trillions of good dollars already thrown after bad rightly should be at least enough to extend psychological cover allowing pigs to drain cows of their every last drop of milk...


Our point of reference is last year's decline culminating in May 6th's flash crash. So far in percentage terms the S&P 500 over the past ten days has come in by a fairly equal percentage.

Duly noted, though, is lower absolute levels measured by RSI (top panel) and MACD — momentum (bottom panel) — from which the market's present decline began, this compared to April 2010 peak. In other words, from a strictly technical perspective the market was (and still is) objectively weaker this time around.

Not only is absolute technical weakness revealed in the present instance, so too relative weakness. Momentum's long-running fade and relative strength's persistent failure to expand with the S&P 500's advance provides most stark contrast with April 2010 peak. Then, relative strength reached its highest since March '09 bottom, and momentum, although not likewise surging, at least exceeded its measure registered at early-January 2010 peak. No such same relative circumstance is seen leading into May 1st peak, however. Thus, again, the market objectively is seen technically weaker presently than was the case last year.

So, observe [bankrupt] pigs at work...


Options premiums still fail to exceed those during last year's swoon, all that confused cows might be further abused, if only for another day longer.

Are things oversold, as many are saying? Certainly no $VIX measure suggests this. None have yet exceeded their peaks last year. So, odds are volatility's surge has yet to see its end.

Again, that objectively greater underlying technical weakness beleaguering the market presently raises probability that, the worst of selling so far developing over the past ten days is yet to come.


Another trip down memory lane. I've detailed this before: a like-from-like study in momentum.

Recall that, during the market's decline from May - July 2008 — the first of five waves down whose end came in March '09 — the range to which momentum fell was between that previously registered at January '08 bottom and March '08 bottom following. Thus, during the present, initial move lower — a first wave of five waves down targeting levels last seen in the 1987-1994 period — in the cross hairs is momentum's range comparable to the January-March 2008 period. In the interim the S&P 500 could reach toward its low last year and meet its head and shoulders top minimum objective in no time at all.

No doubt, right now, relative strength appears deeply "oversold." Yet one should expect a monster bounce when nothing but weak hands make up the preponderance of longs? With the trans-Atlantic banking system rapidly unraveling?

In keeping with that "alarm bell" sentiment rung in 2008, and revisited at the start of last night's comments, statement of one generally agreed upon investing principle seems in order here...

Overbought markets can remain so far longer than a consensus of interests believe. Likewise, too, is this true when markets are oversold.

I'm listening to Cramer as I write this... He's right. It's not 2008. Pity the idiot monetarist monkey will never understand that it's far worse now. There's simply no way to hide the trans-Atlantic banking system's insolvency.

The only way forward is Glass-Steagall or hyperinflationary blowout a la 1923 Weimar Germany. There simply is no middle ground. Time to fake solvency has expired. Worse still, everyone knows it (and if they don't, it's certainly not my fault!).

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