Volume Presents Big Problem for Bulls ~ The Risk Averse Alert

Friday, February 17, 2012

Volume Presents Big Problem for Bulls

Confidence, years downstream from the 2007-2008 collapse of Adam Smith's Leveraged Ponzi Scheme, remains as fragile as an egg shell. Yet did you know if you place an egg in the palm of your hand, close your fingers around it and squeeze it with all your might, you will not break the egg? Go ahead, try it. So, the egg shell in a way aptly describes another aspect of today's market: it simply will not break, despite being squeezed from all sides. Yet it is an egg shell all the same.
Humpty Dumpty sat on a wall,
Humpty Dumpty had a great fall.
All the king's horses and all the king's men
Couldn't put Humpty together again.

Thus, too, are political unions. Wasting no time in the fast lane to assassination, terror and escalating warfare came today's fall of the German President in yet another trial by an oh-so-penetrating media. Apparently, Mr. Wulff is a staunch supporter of the German Constitution and, as you know, these constitutions can be pesky things when you're running a criminal ring (a.k.a. the EMU). So, lighting a tinderbox at the core of euro scrip's financial support only confirms bloody nastiness cannot be far off.

Yet just how it is contemporary affairs continue hammering confidence that, otherwise must be restored if the market is to remain levitated, is made rather plain in technical observations revealing the presence of far more hopes and prayers than money backing the "bullish" current keeping the broad market afloat...


Begin at a March '09 bottom that was confirmed by a positive momentum divergence (this is marked with a green dot in the bottom panel). This former, positive momentum divergence was much like that occurring at early-October 2011 bottom (again marked with a green dot). So, this is our starting point for making comparison showing confidence is fading.

First observation is the market's relatively weaker lift, percentage-wise, in the current instance. Following on this is the market's slightly greater giveback (again, percentage-wise) going into late-November 2011 bottom versus that going into early-July 2009 bottom. And finally, again, the market's vastly weaker lift off this bottom in the current instance versus the former.

Now, what is right there in front of everyone's face explaining this present disparity? It is as plain as day! "Show me the money, Jerry." The "money" is busy plugging holes higher up in the capital structure, and this is graphically indicated presently by a fairly diminished volume of shares exchanged on the NYSE. Contrasting these two, discreet periods during which the broad market was advancing, the present's disparity confirms "confidence" levitating the stock market is in fact waning. Exposed and vulnerable only all the more than was true off March '09 bottom are weak hands whose equity stakes must remain inflated, lest their entire stake running the gamut of securities be destroyed. Yet only the closer to doom does fading confidence in the riskiest securities of all move weak hands who today are reduced to holding on for dear life.

I'm not just making this up! Volume says it loud and clear. Confidence is shot, and yet weak hands have no choice but pretend it's not. All with eyes fixed on the exits, no doubt. Never in my lifetime did a rush for these, now long seeming probable, appear so positively inevitable.

Fast Money
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