Collapse Imminent ~ The Risk Averse Alert

Friday, April 20, 2012

Collapse Imminent

Following is more evidence suggesting the market is vulnerable to a hard turn south and stat. Behold a technical configuration like that preceding April 2010 peak wherein deteriorating momentum is seen prospectively setting up the market's collapse.

Displayed above the weekly chart of the S&P 500 is the Percentage Price Oscillator (PPO) momentum oscillator. Below the weekly chart is PPO's cousin, MACD. Both measures are detailed at StockCharts.

Our starting point is the four vertical red lines drawn. These mark a peak from which PPO subsequently fell below its "signal line" for an extended period. Certain similarities in coincident momentum behavior (as measured by both PPO and MACD) subsequent to these so-called "crossovers" lead to a view supposing the market presently is in a position much like April 2010.

Via PPO, notice how the higher S&P 500 low of early-February 2010 (this versus late-June 2009) resulted in a lower PPO reading, which then was followed by a PPO and MACD divergence at the S&P 500's April 2010 peak. This is marked with red dots. Now carry your view forward and check out the green dots. The same background conditions are presented by the S&P 500's performance (higher lows and higher highs) while momentum likewise deteriorated and diverged (divergence at April 1st, 2012 peak is most evident via MACD, yet still occurs ever so slightly, too, via PPO).

In addition to these noteworthy momentum divergences is a "like from like" view suggesting the S&P 500 is well positioned to collapse in a sell-off dwarfing last August's, as well as May 2010 before that. This is presented by the same colored lines (gray and black) I have drawn below MACD. So, now that PPO has crossed over its signal line just as in April 2010, a moment of truth appears at hand. Taking into account the great wealth of other technical measures starkly indicating the market's underlying weakness, one must conclude the market currently is at heightened risk of collapsing.

If you insist something must trigger such an event, then look no further than Argentina's nationalization this week of Spanish Repsol's YPF oil company. The last thing the hopelessly insolvent trans-Atlantic banking system needs is a sovereign kicking out its main prop. Higher energy prices, beyond being a scarcity-driven consequence resulting from hyperinflationary processes tied to ongoing, attempted bailout of a hopelessly insolvent banking system, represent a hidden tax whose proceeds create cash flows necessary to mask the banking system's insolvency. Energy production occurring outside the circle of Team Fraud assets (among which, of course, are oil companies) leaves less room for controlling circumstance allowing the banking system's insolvency to be further masked. So, with Argentina's move comes heightened risk that, energy, as well as other resource props, will be nationalized with increasing haste the world over. Indeed, such a move occurring at all vividly reveals that, only the hopelessly insolvent are deceiving themselves. What impact this realization might have on those whose eyes clearly are fixed on the exits (diminishing volume over the duration of the market's counter-trend rally off March '09 bottom confirms this element is ruling the day) is a mystery whose uncovering finds both fundamental and technical basis for supposing a "shoot first, ask questions later" spirit might imminently sweep over the market and the world, as Argentina's move likewise should raise the pitch in the drive for war.

Fast Money
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