At the Precipice of a Crisis of Confidence ~ The Risk Averse Alert

Friday, September 02, 2011

At the Precipice of a Crisis of Confidence

Reviewing present technical similarities to June 2010, following a similarly situated, counter-trend peak...


Just how low might an S&P 500 sinking go, and yet still effect a positive momentum divergence (much as occurred late-June 2010)?

Truth is continuation of today's trip down could prove much deeper and swifter than most are fearing right now. Consider, too, if RSI (top panel) were to challenge its August worst, much as occurred at late-June 2010 bottom. Things could go from bad to worse very fast.

Never mind markedly greater underlying technical weakness, today versus mid-year 2010. Scratch that. Until further notice do not forget it. Place it with memories of 2008's shocking devastation. Times like these need an accurately calibrated lie detector.


There goes the mystery. A brutal five waves down could have begun unfolding this week. These could form wave (3) of C over weeks ahead, soon resulting in March '09 lows being taken out across the board. You heard it here first.

This view simply assumes there's no more faking the trans-Atlantic banking system's solvency. Technical developments off March '09 bottom consistently have confirmed distrust — a lack of confidence — in extraordinary arrangements put in place following 2008's collapse of the shadow banking system. Weak hands frozen over the past few years while equities were propped up largely by monetarist, technical means objectively are shown in no position to defend current levels at a time when the prop is under attack (Europe) and proving ineffective.

August's shocking letdown is thought but an opening salvo confirming technical evidence these past few years consistently revealing those long equities are but weak hands awaiting fleecing. Beneath the smokescreen of increasing liquidity crises, post-2008, is a mountain of unsustainable debt securities. Determination of their ultimate viability can no longer be delayed, it seems.

A crisis of confidence, a la 2008, no doubt has begun to erupt at the core of the trans-Atlantic financial system, in key European, American and BRIC components alike. Make no mistake. Risk of rapid unraveling is fast increasing (Germany). What's more, confirmation of this most dire, short-term view above should not be delayed (Constitutional Court). In fact, next week's Labor Day shortened trade could prove devastating were the market's ultimate collapse sometime over subsequent weeks likely to follow.

Technical developments up to Wednesday's peak, and now two days beyond it, raise probability that, a letdown far worse than what most everyone believes likely is on the horizon. Like I said, confirmation of this prospect should not be delayed, particularly following this week's awful trade.

SPX 1-min

That's an island reversal (not terribly technically reliable) and a negative close on the week. Considered in the context of the credible view forward presented above, this week's turn is ominous confirmation of its imminent prospect to say the least.

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