Death By Twinkie ~ The Risk Averse Alert

Wednesday, January 11, 2012

Death By Twinkie


First, some encouraging news: Kudlow finds stocks "absurdly cheap." Tell it to a European banking system collapsing under the weight of a zero due diligence regime whose latest permutation is a page right out of Wiemar Germany — a fact probably not lost on a gasping, crisis wracked political class at the helm of the EMU's lynch pin economy whose surprise, Q4 2011 GDP contraction is a hyperinflationary policy's nightmare come true. Twinkie anyone?

(Better enjoy the luxury while the price of sugar and flour still are within reach. At the rate incompetent, morally bankrupt regulators are going, shutdown of all kinds of food production is bound to accelerate for the very same reasons impacting Hostess today.)

So, how is it risk of the market's utter collapse in a chain reaction of events rapidly spiraling out of control in a whirlwind of controversy and confusion forever banishing today's ghost of Adam Smith's Leveraged Ponzi Scheme is possibility largely believed remote, if not entirely fantastic? This question is asked, of course, in light of today's extraordinary vulnerabilities pressing the limits of confidence.

The fuel, THE fuel: undue leverage applied to enterprises gambling wealth (rather than securing and expanding it in principled, productive commerce). Such a simple matter really, easily straightened out with Glass-Steagall. In fact restructuring should be no more disruptive to civilization than was the bursting of the Holland Tulip Bubble. That is what can be with the right intention, anyway. Yet truth remains that, unpayable debt and added leverage on securities facilitating it — both illegitimate — are a dark cloud over the planet threatening a torrent likely to permanently alter the political and financial landscape. This uncertain outcome, which by all indications evidently is to be reached in a climate of chaos, appears the very intention.

Now, considered strictly from a technical perspective the stock market's present condition is rather well-poised for collapse coincident with all too likely credit market convulsions already well along in developing and still very much at risk of devolving into a systemically threatening disconnect. Thus, my question per risk of the market's imminent collapse. Forgive me for breaking the silence, but the fundamental backdrop scarcely has been more conducive to calamity.


$SPX

And this is how such a thing could play out starting sometime as soon as days even. Still being very early along in the 200-day moving average's turn down, relative strength's persistent weakening places the market's imminent collapse squarely in the cross hairs.

The line drawn across the S&P 500's price chart is interesting. In connecting 2002 and 2009 bottoms it dissects in 1997 the third wave of a third wave of five waves up from late-1994. The market's upcoming collapse is slated to form wave (3) of C, another third wave of a third wave. Thus, the prospective follow-through to the market's pending collapse, as indicated above, slated to complete an a-b-c corrective wave down from October 2007 (or, alternately, September 2000), targeting S&P 500 levels last seen in the 1987-1994 period. Chance are by then, Kudlow will need a padded room.


Fast Money
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Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.

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1 comments:

johnythomas said...

Hat’s off. Well done, as we know that “hard work always pays off”, after a long struggle with sincere effort it’s done.