The Wrong Kind of Certainty To Be Sure ~ The Risk Averse Alert

Friday, June 29, 2012

The Wrong Kind of Certainty To Be Sure

It was the short squeeze heard 'round the world. Yet apparently for good reason JP Morgan Chase went AWOL. There's probably plenty of exposure [directly and/or indirectly] tied to Portugal, Ireland and Greece to name three reasons. Why there a growing mass strike could instantly turn violent if the euro is not abandoned immediately. And why wouldn't these nations test the presently unfunded ESM making such a threat, this a la Spain and Italy today? Why not prove bailout either a hopeless cause or sufficient that much better terms can be squeezed?

For now a transfer of no ESM capital (because it does not yet exist) directly into insolvent European banks obviously leaves these banks insolvent just the same. A counter-party problem for JPM (and the rest of the trans-Atlantic) in the making to be sure. Nevertheless, suckers who lined up today after Chicago did its deed simply are not listening, which is as it should be just prior to disaster.

You can take this to the bank: what you see circled above is the wrong kind of certainty. This strongly one-sided variety typically is abused subsequently, and usually with little time in waiting.

All the same, my recent view supposing a 2nd wave of five waves down from this year's peak probably continues unfolding was confirmed today. The Elliott wave form this corrective wave is taking, however, now is more so in question. Yesterday's "running correction" could be today's "double zig-zag," say, if you're looking at the NYSE Composite Index. Suffice for now that, it's quite possible a slightly different Elliott wave count applied to the major indexes finds all still well poised for a jaw dropping thumping starting any minute now.

Still more technical evidence indicates the wrong kind of certainty today was chasing stocks, and leaves no doubt this is how garbage is offloaded when the risk of its sudden burial is enormous...


The darlings of globalization, no doubt, led the charge today. These, like Nike, are the impending victims of hyperinflationary breakdown, whose number might be thought growing over the past couple years inversely to the diminishing number of NYSE-listed issues hitting new 52-week highs as each new hyperinflationary lifeline issued by increasingly insolvent lenders of last resort has taken effect.

That circumstance above reveals a technical state similar to last July is moderately interesting to say the least. Plus there's the matter finding the market's degradation from peak to trough this year relatively more substantial than that from May-June 2011 — this being confirmed by the NYSE new 52-week high-low differential, as well — yet the NYSE Composite Index here still is well-short even of its June 2011 low, thus exposing the true "strength" of the NYSE's leaders. In other words, theirs likely is a funeral in waiting. No coattails is no animal spirits, and without these the market is dead to be sure.

Indeed, today's certainty more likely is entirely misguided. Were some juice of any quantity to come from Team Fraud's pass given to Spain and Italy today, then just as occurred prior to the acronym LTRO becoming the hyperinflationary flavor of the day with capacity to fake the trans-Atlantic banking system's solvency for at least some weeks, thereby allowing more garbage to be offloaded to its lovers, a disguised, doubt-seeded technical state like that late-November 2011 probably would have instead resulted today. An "all is well!" rather quite like last July's is a different animal altogether whose presence here is perfectly fitting a market poised to unravel.


Man, it looks a lot like last July. But more of the wrong kind of certainty is displayed with the NYSE Composite index today gapping above both its 200- and 50-day moving averages, this while a measure of the index's momentum (MACD: see bottom panel) still remains to the negative side of its range. In fact, you might want to look back to April. Notice any similarity to June? A decline worst than May's might very well be knocking at the door.

Just for fun take a tour of the too bankrupt to save financials (in fantasy land these are called "too big to fail" ... otherwise today's name for tyranny, a truth becoming rather well-known in both Europe and the United States). In fact GS, MS, BAC, and C appear in great position to find JPM's difficulty all the more their own. You might say rapidly accelerating demands on an unfunded European bailout facility appear priced into these [badly languishing] shares. Not yet factored, though, is today's elevated risk that, Portugal and/or Ireland and/or Greece might default and collapse the EMU, not to mention what full disclosure of the Spanish and Italian bailout need whose sum likely dwarfs the present ESM capital commitment might mean to the shred of confidence keeping financials in the game of make believe whose fading credibility spells "bond vigilante." The TBTS, indeed, all appear well-poised for a rude awakening, and this is no strange coincidence. A day saturated with the wrong kind of certainty finds fearsome truth in foreboding company, which could make JPM the derivatives king whose desperate search for solvent counter-parties ultimately was behind today's euro-gimme-lest-the-whole-shebang-collapse-this-weekend.

(p.s. "Fair and balanced" truly was CNBC's "Options Action" tonight — click the icon below to watch it. And about today's outsized gains in commodities reaching upward of 10% in some cases: remember, leverage runs on a two-way street, which fact hovers like a dark, ominous cloud over a posse of bond vigilantes whose approach is set to bury both Tina and Bernice, along with many other stinking piles of garbage.)

Fast Money
* * * * *

© 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!