We've been through tonight's analytical exercise already, but the present, Fed-influenced moment really offers a great opportunity to make a relevant, like-from-like contrast and hammer home a compelling disconnect making for a very bearish case. More on that shortly. First, some relevant orientation.
Complacency right now is astonishingly thick, and this in the face of an incredibly weak macro backdrop, both fundamentally and technically. I might not really know much at all about the nuts and bolts of our wildcat banking industry, but there is one thing I do know about our Federal Reserve banking system. In all the years since the Federal Reserve came into being in 1913 there was never a need for a "stress test" until the year 2009. This is to say a stress test is no sign of fundamental strength. Does this fact not seem more or less lost on everyone?
Bad enough, really, is just one stress test. Worse still is yesterday's second take, which in fact is best seen a living demonstration of "fool me once, shame on you; fool me twice, shame on me." Add Jamie Dimon's premature ejerkulation all over the Fed, and the utter shipwreck that is the trans-Atlantic banking system, completely unmoored from any effective regulatory restraint, presents in our midst a frightfully gasping dinosaur quite threatened with extinction. In doubt only is whether the Fed will survive to celebrate its centennial anniversary.
Europe? An evolving nightmare whose physical economy, as you know, is collapsing. Positively crushed with debt, a bailout junkie whose need is ever more voracious, feeding on the life and blood of the continent to a degree rather frightening, as well as likely leading to revolutionary uprising. The question right now is not when will the euro-zone collapse? The question is when will some significant, investor move to the exits precipitate an avalanche, and make the EMU's collapse a fait accompli? In case you've been asleep these past few years every single instance of European credit market stress has developed virtually overnight. There is no reason to expect the next will be any different. Likewise, there is no reason to think credit market stress is a thing of the past. Indeed, on this point there seems to be a consensus.
Yet during the first five minutes of tonight's Fast Money both Insana and Gartman went so far to explicitly state their firm belief systemic crisis is off the table. An unusual thing for anyone, anytime, to say, particularly on CNBC. Not so much, maybe, given well known vulnerabilities, but considering the market turnaround we have seen over the past six months, rather curious is the sound of an "all clear" in light of unprecedented risks everywhere you turn. Fitting, really — but a variant of the Dimon Disease — given the fact that, technically speaking, the market faces no small risk of imminent unraveling.
Contrasting the present moment with technical circumstance following the May 6, 2010 flash crash and its aftermath, we find a common point of reference in Fed action taken to prop up the banking system. It was the day after November 2010 elections the Fed took to QE2, while yesterday was its shot of "confidence" whose "good news" could not wait even 48 hours for some who apparently have no regard for good taste when it comes to gaining competitive advantage.
Just how money talks gains clarity in the contrast. Both the NYSE Composite index's momentum (bottom panel) and volume provide the means for making a distinction revealing a disconnect that, those utterly complacent today are completely missing, and at their own grave peril no less. Technical failures are everywhere in the current instance. The contrast presents nothing short of night and day. We simply must conclude the market, right now, is far more vulnerable strictly from a technical perspective than was the case early-November 2010.
Indeed, the market's dire technical condition might shed some light on Dimon's slight yesterday. Is the firm being positioned as rapidly as possible for the coming kill? Nothing like a well-telegraphed sense of urgency in whose delivering we might better suppose the Fed is dead, at least as any effective, stabilizing agency. Whether there likewise is more than meets the eye per today's insider dissing at Goldman Sachs, the very question is only the more pertinent given yesterday's shenanigans out of JPM. One is left to wonder how much Mr. Smith might have been paid by a Goldman competitor to write his New York Times op-ed piece.
With all this in mind, today's Treasury and gold rout draws into the cross hairs the very volatility projected to coincide with the last gasp higher both these asset classes are likely to enjoy, this as the stock market embarks on the first leg of its journey south enroute to a decimation at whose final end major indexes still remain forecast to sink to levels last seen in the 1987-1994 period. Indeed, the market's misery might begin in just a matter of hours, if it hasn't begun already, as both $UST10Y and $GOLD are respectively meeting their 200-day moving averages and are thought likely to bounce off these decidedly.
* * * * *
© The Risk Averse Alert — Advocating a patient, disciplined approach to stock market investing. Overriding objective is limiting financial risk. Minimizing investment capital loss is a priority.
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.
Nothing is set in stone. Nor is the stock market's path of least resistance always known. More often than not, there are no stock index option positions recommended.
There's an easy way to boost your investment discipline...Get Real-Time Trade Notification!
