Controlled Disintegration Comes At Great Expense ~ The Risk Averse Alert

Wednesday, December 21, 2011

Controlled Disintegration Comes At Great Expense

Still well shy of the Geithner Minimum ($2 trillion), today's net $200 billion euro grease courtesy the ECB apparently plugs a few holes in leveraged exposure burdening the European banking system (at least through year end), but does little more than stall its inexorable slide into a shark infested abyss, failing capacity and will to support lenders of last resort, much as is being widely reported (possibly for German consumption?). With attacks on sovereigns proceeding to inevitable chaotic crescendo, then, controlled disintegration of precarious arrangements left in the demise of Adam Smith's Leveraged Ponzi Scheme rather appears the best Europe's dyed in the wool fascists are capable of mastering.

Needless to say the times they are a changing...


Controlled disintegration (and accompanying debt destruction) is a likelihood that, commodities could be projecting in a CRB whose 200-day moving average is falling and 50-day below it.

Seconding the motion is spot gold, whose 200-day moving average still is rising and 50-day still well above it. Observations I made on 8/27/2011 and 10/19/2011 still are very much alive.

Since the bid for spot gold is expected to go parabolic a la August once the stock market begins its next leg lower (i.e. wave (3) of C), gold's current heaviness offers a point of reference in the ongoing development of a corrective wave forming across major stock indexes (i.e. wave (2) of C). Perspective supposing this corrective wave's completion is still some days away (possibly extending into weeks) gains substantiation in spot gold's current "weakness."

SPX 5-min

Per variations on this [still forming] corrective wave detailed here to date, any advance carrying the S&P 500 above its peak on Friday, December 9th will require throwing out prior Elliott wave count possibilities applied to this corrective wave and adopting an alternate view.

No big deal. This appears the right moment to raise the possibility, though, as judging by today's finish, the market appears poised to continue its advance off Monday's late-day bottom.


So, here's another prospective variation on a corrective wave. In the parlance of the Elliott Wave Principle the above view finds wave (2) of C forming a "complex" corrective wave. Rather than ending late-November, though, the so-called "connecting wave" (i.e. wave x) of this complex corrective wave might still be forming (thus projecting end of wave (2) of C some weeks ahead, rather than days as suggested by the wave count above).

Overhead resistance is indicated via green lines. So, although today's trade suggests the market's advance since late-Monday still has legs, there's not a lot of upside remaining. Things are not about to run away. Indeed, [near-term bearish] perspective on the CBOE Put/Call Ratio covered here over recent days remains entirely intact.

Per prospect major indexes over weeks ahead might remain fairly confined within the wide range established since late-August, given where things are heading — a controlled disintegration inevitably flushing toilet paper down the drain — a "complex" Elliott corrective wave seems a natural setup for trapping a consensus of interests.

Duly noted above, too, are waves 1 and 2 of (1) of C circled in red (July). Second waves are famous for retracing almost the entirety of first waves preceding them. So, per wave (2) of C presently unfolding since late-August, there's "precedent" raising prospect this larger second wave might correct the better part of the first wave preceding it. Such has occurred already (yet could further manifest, as well).

$UST1M weekly

1-month Treasury Bill yields once again have sunk to negative. Now that's a broken financial system! So, in keeping with possibility the stock market will continue to levitate and form a "complex" Elliott corrective wave prior to inevitable collapse we find a present reality revealing liquidity abundant, but confidence thinner than Gandhi. The case for considering equities so much toilet paper, then, rightly finds harmonious the rush for safety revealed by 1-month U.S. Treasury Bills.

Now, some assign this extraordinary circumstance to money market portfolio manager "year end window dressing" ...

Since when, though, does April mark year end?

(Pssst. The banking system is insolvent and time's passage is more firmly entrenching this perception!)

Fast Money
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