Confirmed: Fed Got S&P Credit Squeeze Memo ~ The Risk Averse Alert

Tuesday, August 09, 2011

Confirmed: Fed Got S&P Credit Squeeze Memo

What did I say last night? Caveat emptor! (For newbs "Shemp" is Cramer. A couple years back he was riding a few Wall Street analysts, calling them "Larry, Curly and Mo." Being I so disagree with Cramer's macro view — a banquet of monetarist illogic so eloquently displayed in his "rant heard 'round the world" — "Shemp" was a natural fit.)

So, we finally get one day solidly up and the sophistry just gets thicker. It's not 2008, don't you know? You just never mind that imploding, trans-Atlantic banking system! It'll take care of itself ... just as it has over the past two-plus weeks (and, indeed, several month preceding).

Apparently Standard & Poor's sent the Federal Reserve the memo about the coming credit squeeze its downgrade of U.S. Treasuries is meant to precipitate, so the Fed is well aware there's nothing more it can do. Terranova — totally misinterpreting a handcuffed Fed — obviously does not get it, nor do Lawrence McDonald or Shemp. All macro out to lunch, just as they should be right before what's likely to prove the most devastating bear market in history.

As for Howard Lutnick, he might change his tune toward equities once their fade reasserts itself going into the end of this week's trading...

SPX 1-min

Never, over the course of the market's decline since July 22nd did the market (outside its open) ever see 1-minute RSI oversold to a degree as it was overbought going into today's close. Only on Friday, July 29th's sharply lower open (with help from a soft pre-market) was a comparable RSI extreme seen. As noted yesterday, during that first week of the market's present decline a most graphic display of underlying weakness made sense then, given how poorly disposed had the long side become, and this in fact a condition increasing for months on end leading to July 7th top.

Yet today's opposite RSI extreme came late in the day, this after nonsense conclusions per the Fed were set in stone. I give you irrational exuberance ... or just a game of follow the sucker. Take your pick. Either way, the market's going lower. Too much certainty bottom is in. We never saw any negative RSI extreme even remotely close to this yesterday when the market fell apart all day and registered its worst NYSE Advance-Decline differential since the crash of October 1987 (this according to Art Cashen). There should be more fear here. When there's no fear, then as sure as the sun rises on New York City, there will be pain.

(Very much the story underlying the market's counter-trend advance off March '09 bottom, too.)

SPX 1-hr

She's going lower, this to complete five waves down from July 22nd peak. Today's monster rally over the final 75 minutes of trading succeeding only in bringing buy- and sell-side balance at the upper end of the RSI range at 1-hour intervals where from since July 22nd successive declines have commenced.

Duly noted, too, are absolute values defining RSI's range since July 22nd: relative strength is seen solidly to the sell-side throughout the market's entire move lower. This at 1-hour intervals! Impressive. Perfectly fitting the dynamism of an Elliott third wave — specifically, wave C down targeting levels last seen in the 1987-1994 period, and completing an a-b-c Elliott corrective wave from October 2007 top.

Presently, but the initial move lower in forming wave C has begun: the first of five waves down targeting levels last seen in the 1987-1994 period. Already some very bad — extraordinary — technical readings have been registered. Per the Elliott Wave Principle this state of things is most fitting. Such dynamism, indeed, is typical, and likewise confirms a dire outlook.

Five waves down from July 22nd have yet completed. This should occur over days ahead.

Completion of five waves down from wave B peak on July 7th — these forming wave (1) of C — is some weeks away...

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