Collapse Detonator and Years Later ~ The Risk Averse Alert

Monday, April 30, 2012

Collapse Detonator and Years Later

Let's say the market's rally since early October still has legs enough to maintain levitation a few weeks more. Here's how this might look...


It's not the first time this possibility has been considered. The Dow Industrials most nearly raises the prospect, as it came a shade on Friday from reaching its April 1st intra-day peak. Maybe it will get there tomorrow? If so, then a few weeks more prolonging levitation probably are in store.

Momentum (bottom panel) is an interesting study in relation to this possibility's development. Its three month fade, were it to continue, could see the next few weeks unfolding pretty much as drawn. Wave 5 of c also could prove a so-called "failure" (failing to exceed the peak of wave 3), while momentum could even peak slightly to the negative. Subsequently, it just might be impossible to buy another minute pretending impossible imbalances, physical and financial, are even remotely sustainable.

The euro-zone is a disaster requiring ever bigger bailout and ever more blood to wash the trail. Where there used to be a choice — inflate or die — now there is none. Inflate and die is Europe's future. Evidence of this reaching even political institutions already is impossible to ignore. How much more dismantling of a once predictable status quo might be immediately ahead amidst spreading desperation throughout the crumbling euro-zone? It's not looking pretty in Spain.

The mere increase in perceived risk of the EMU's disintegration, itself, could prove devastating: a veritable self-fulfilling prophesy. The manner in which markets are widely believed to lead the economy could in such an instance make the euro-zone's and the trans-Atlantic banking system's collapse a fait accompli. We should all remind ourselves that, the detonator has already gone off. Confidence required to endlessly inflate securities at the core of the banking system's fee-based orgy has been shot. Every bit of fundamental and technical evidence developing over the past three years confirms this. Again, the detonator was ignited in the 2007-2008 period. All appears since to be proceeding to the inevitable fat lady singing, while over the interim biding time and little else but breeding chaos of an historic sort. It is quite natural, too, this reality is largely ignored. Still, convulsions yet to come are likely no less perceived and feared than was true at the threshold of historic moments past, as well. Ill-founded hope ever waxes in spite of grave vulnerability hard to ignore. And yet now nothing extraordinary need tip over the applecart, as this part of the market's fall from grace already is done, as is confidence. Only the market's slide over cliffs edge is worthy concern here, be it tomorrow or a few weeks further down the road.

Fast Money
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