Time to Pull the Plug ~ The Risk Averse Alert

Monday, October 24, 2011

Time to Pull the Plug

What's the difference between Netflix and the trans-Atlantic banking system?

Netflix assets being more transparent, its after-hours hit today could prove mild in comparison to what's coming to those paragons of tyranny otherwise called "too big to fail" (bringing to mind spectacular declines in the shares of Bear Stearns and Lehman Brothers leading to the lip of their respective graves, whose most vicious moments followed many months of stock price softness, much as we see among the likes presently).

Next VIX trip above 40, chances are it's game over. Indeed, this appears a high probability, as technically there presently is a July-like contextual similarity conspicuously suggesting that, even as soon as over the next few weeks could the market collapse and take major indexes well below respective March '09 lows.

Before we take an inside look, though, let's talk about "sentiment." Should we be surprised at this pre-collapse moment there would be observers who would cite negative sentiment as a "contrary" measure, mistakenly assuming the moment a bull market, rather than the bear market it is? Never mind one must look at today's supposedly negative sentiment through rose colored glasses diffusing the light of fires everywhere. Recall sentiment was terrible in the August-September '08 period, too. This did not stop the market from collapsing in October.

Which begs the question: if the Treasury Secretary says there will be no new Lehman, what weapons does he possess to deal with the prospect of the EU's imminent disintegration ... outside of drones? I bring this up because no one expected Lehman to be thrown to the wolves. Ditto Europe presently ... which consideration begs another question: could the two, major EMU protagonists — both with long histories of treachery involving Great Britain — currently be playing "good cop / bad cop" in a bid to drop some bombshell?

There is nothing "magnanimous" about the market's patience for more bailout, particularly not in the context of EMU political leadership being vividly shown the moment's true colors by way of last week's treachery in Libya. These and points east, I am certain, received the message.

So what's the best weapon Europe possesses if it wishes to avoid yet another devastating war on the continent? Make way for the financial system's chaotic collapse. Should Europe look east and recall the military consequence of the Soviet Union's demise, next up could be the U.S.A., upon whose similar geo-political diminution the larger part of the globe might again become the uncontested playground of Europe's assorted oligarchs and fascists (much as the globalization regime always has ventured). The worst of it is that, by his every action throughout his career in Washington D.C. the President has appeared rather easily duped into playing a tragic role whose consequence reasonably is thought hastening this end. Indeed, given the man, the moment — both on the political calendar, as well as in a still unfolding economic breakdown — and a long-promoted, [anti-government] free market will to destroy the global influence of a once great nation, sadly, it is hard to imagine a more favorable moment to get 'er done. Right on cue do the Brits signal to the continent it's time to pull the plug.

Thus does the present moment's technical similarity to July find fundamental circumstance likewise suggesting collapse could be imminent...

NYSE McClellan

The NYSE McClellan Oscillator (as well as the 5% and 10% indexes) rather suggest the market's counter-trend rally has shot its wad. The message delivered in present similarity to July is that, a market going relatively nowhere requiring a hefty measure of net advancing issues over the interim amounts to time bought forestalling the market's further collapse. That collapse is assured is revealed by the relative extreme to which net advancing issues have lifted the McClellan Oscillator, demonstrating a more fearless consensus, such as typically exists just prior to disaster.

Not until this measure displays underlying trepidation in the face of an advancing market will the risk of further collapse be thought to have passed.

$NYAD 10-day vs. 200-day

Another view of NYSE advancers versus decliners, this contrasting the 10- and 200-day moving averages of the NYSE Advance-Decline Differential. If ever someone develops a dictionary of common phrases and wishes a picture to accompany the phrase "weak hands," the above presents a solid two years of weak hands at work on the NYSE.


$SPX weekly

And just to confirm that recent years' domination by weak hands makes the present moment quite foreboding, the S&P 500's relative strength (top panel) and momentum (bottom panel) measured at weekly intervals both are not only more negatively poised than at any time over the past two years, but also are a long way from challenging 2008's late-year extremes.

Yet challenge and, indeed, exceed 2008's extremes is not unlikely, as the market's pending decline to levels last seen in the 1987-1994 period should reveal accompanying technical character as dynamically weaker than that during 2008's throttling.

Fast Money
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