Weak Hands Drinking the Kool-Aid ~ The Risk Averse Alert

Thursday, December 22, 2011

Weak Hands Drinking the Kool-Aid

Pete Najarian was more than mildly positive on financials this evening, so let's take a look...

XLF 15-min

Today's rally filled $XLF's gap lower of two Mondays ago. So, how many more portfolio managers now might be inclined to further trim their exposure to the market's dogs of 2011? How this group doesn't fall of its own weight in muted trading to close out the year is what one should wonder. The same consideration two Mondays ago is no less applicable now. Waning underlying confidence will not be easily restored, as both yesterday's look at 1-month U.S. Treasury Bills(!), as well as financials, themselves, confirm.

Now, prospect the market might suffer imminent weakness is fortified by yesterday's Elliott wave perspective anticipating extended corrective wave development forming a "complex" corrective wave since late-August. Technical evidence both raising likelihood a complex Elliott corrective wave is forming, as well as prospect the market presently is vulnerable to weakness, follows...


What's up with a rising NYSE new 52-week high-low differential as the NYSE Composite registers declining peaks (see green line above)? Art Cashin probably nailed the mechanics, providing more evidence of a broken financial system.

Broadly speaking, is this condition not the same old face of a stock market dominated by weak hands? In spite of this year's collapse of the market's lynch pin — financials — a consensus still holds out venturing to pad positions playing a momentum game on dips when selling evaporates (as described by Cashin). Rather than increase pressure on issues likely to suffer as a controlled disintegration's prospect further bears down over months ahead, weak hands instead are passing off this clear and present danger choosing to remain exposed, in the process only increasing operations targeting high beta issues among the market's leaders over the past year.

No doubt fitting a moment poising to prove weak hands perfectly foolhardy once the bottom falls out. Then again, these folks probably have no choice other than go down with the ship...

Fast Money
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