Jackson Sink Hole ~ The Risk Averse Alert

Thursday, August 30, 2012

Jackson Sink Hole

Obviously it is becoming more difficult to levitate garbage without new money coming in. As relatively pathetic volume suggests, HFT liquidity is drying up, therefore making stocks more vulnerable to falling of their own weight. And so it was with today's giveback.

Bailout junkies likely being on hold until at least mid-September at the confluence of an FOMC meeting and a German constitutional court decision regarding the ESM, the time might be right for an orchestrated scare (a.k.a. swindle) intending to insure a paralyzed banking system gets its "fix" sooner rather than later. All the more does this seem likely should no grease be forthcoming when the Prince of Ponzi speaks tomorrow in Jackson Hole. Can you imagine the firestorm if Bernice unleashes a gusher just prior to the Democratic National Convention next week? Any signal suggesting more hyperinflationary happiness is on the table, then, in all probability will have to wait. Yet force the issue, one can be sure, the hopelessly insolvent soon must.

Thus, the following, slightly altered Elliott wave view...


The only change here is to wave b of the second "three" in an a-b-c-x-a-b-c complex Elliott corrective wave forming since March '09 bottom. Whereas previously I had labeled its "a" wave ending early June, the above, alternate view suggests wave a of b might still be forming. As such, the second "three" of the complex corrective wave forming since March '09 could take some additional months longer to complete.

There is no change in the wave form the second "three" is thought to be taking. Just as was the case last Tuesday when the S&P 500 set a new intra-day high, post-March '09 bottom, a so-called "flat" still is thought to be forming off October 2011 bottom, when formation of the second "three" is assumed to have begun. Wave a of this flat continues to be seen unfolding as a 5-3-5 "zig-zag" ending mid-March. Likewise, wave b of this flat continues to be seen, itself, unfolding as a 3-3-5 "flat." Yet rather than wave a of b ending early June, the above view suggests its development could be in progress still.

The only consideration initially leading me to like this alternate view less than the original surrounds the matter of fading relative strength and momentum typical at tops preceding substantial declines, much as was discussed on Monday. However, in this New Era of squealing weenies without a care for a central bank "exit strategy" — these only confirming how hopelessly insolvent is a banking system that, trillions of dollars of bailout later, still is incapable of generating cash flows necessary to sustain itself — we might be subject to seeing a qualitative change in coincident technical dynamics from here on out. Indeed, we already witnessed this at early-June bottom when momentum (bottom panel) by no means registered any sort of positive divergence otherwise typical at bottoms. Thus, last Tuesday might mark top to an a-b-c wave up from early-June, notwithstanding the absence of any negative divergence registered via relative strength (top panel) or momentum (bottom).

All that said, though, how will the criminal fascist leading the Fed avoid hinting at more hyperinflationary happiness still to come, this when he gives his much anticipated speech at Jackson Hole tomorrow? If he but swipes at Republicans challenging his incompetence with increasing ferocity of late, we can be certain mouthpieces for bailout junkies will gush with hope. Thus, tomorrow could bring yet another Friday whose effect fully recovers losses endured throughout the week. We have seen this happen several times over the recent period. Still, if the above Elliott wave view holds sway, Europe's return from its little deserved, month-long vacation could see the well-rested, bankrupt beavers feverishly put to work during a holiday-shortened week in the U.S.

By the way, further substantiating the likelihood that, something nasty might be imminently in store are both the Put/Call Ratio and the Volatility Index, both of which whose momentum is accelerating higher, with the former now positive and the latter about to enter into its same danger zone.

Fast Money
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