Prelude to a World Record Unraveling ~ The Risk Averse Alert

Wednesday, February 22, 2012

Prelude to a World Record Unraveling

How long has it been my view that, prelude to the market's rendezvous with destiny in which it could come unglued even more rapidly than occurred in '08, NASDAQ likely would relatively outperform the NYSE? The thought was this would occur in a manner whose setup might be rather similar to August 2008.


In the market's fall from May-July 2008 each index behaved slightly differently from the other, this in relation to respective March 2008 lows. NASDAQ's relatively better performance presented a market, overall, whose psychology might be called sanguine. All the more was the market's sanguine psychology on display off July 2008 bottom, as NASDAQ recovered a good portion of its losses from May-July 2008, whereas the NYSE Composite barely budged. Subsequently, well, the rest is history. Yet living history at that.

In bottoming in March 2009 both indexes have in relation to their respective October 2002 bottoms performed precisely the same. The NYSE Composite bottomed below its October 2002 low and the NASDAQ Composite above it. So, over a broader horizon — a longer-term perspective — again, one might regard market psychology as entirely sanguine. That the riskiest of the riskiest, the most speculative of the speculative (generally trading on NASDAQ), are holding up relatively better since 2002 rightly allows this conclusion. Of course, it is largely substantiated in the context of an Elliott wave view projecting a steep decline sinking major indexes to levels last seen in the 1987-1994 period, and this straight ahead (as in any minute now).

Relative developments off March 2009 bottom again mimic the lead-up to Lehman Brothers' bankruptcy. Indeed, the complacency is so thick now — all hail the monetarist monkeys! — even the relatively harder to move NYSE has been able to catch a bid (unlike the August 2008 experience). Double dip sanguine is NASDAQ's relatively better performance versus the NYSE off October 2011 bottom, this but following on its superior performance off March 2009 bottom, as well.

The point here is a market collapse thought imminent finds eyebrow raising substantiation in physical evidence of circumstance involving movement of money whose distinction is revealing. There probably are not many people in the world who suspect a collapse of 70-80% by mid-year were possible, but really, does one go out on a limb all that much, given vulnerabilities unlike anything anyone living has ever before seen? Today's incredibly sanguine attitude truly is fitting prelude to an unraveling for the record books.

Fast Money
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