Creme de la Garbage Checkup ~ The Risk Averse Alert

Thursday, August 09, 2012

Creme de la Garbage Checkup

When it comes to wildly overpriced garbage still finding an active market today (as opposed to the cold stones on Mount Insolvent marked to some fantasy concocted at Princeton University), the leader of the pack is the group choking the hardest at the hands of the Frankenstein monster of its own making (i.e. credit derivatives) represented by the S&P 500 Financial Sector Index. This index consists of 81 financial stocks and is tracked via the XLF...

XLF weekly

Talk about hanging on for dear life! Just look at the weekly volume trend. It's fading faster than the U.S. Congress' approval rating. Again, "it takes buying to put them up." That's a different animal than a short squeeze initiated, HFT extended circle jerk.

Now, last October's massive short squeeze really got the ball rolling for the living dead. A ton of pressure subsequently put on Count Draghi-ula and his pack of fascist vampires at the Reichsbank in Brussels, and wha la, December's hyperinflationary happiness called LTRO delivered financials to the promised land. In fact these basket cases led the way during this year's 1st quarter. Never mind the price paid in across-the-board revenue hits suffered on account of physical and financial shutdown fostered by this, Team Fraud's hyperinflationary policy. Another Great Depression averted — or so they say, but taking a page out of the inflation reporting methodology, they should add "excluding the euro-zone periphery" — and a greased rumor mill was primed to keep spinning for more "decisive action" from central banks on both sides of the Atlantic. Hence the Q2 XLF save at its 200-day moving average.

Yet much as was recently posited vis-a-vis the S&P 500, the XLF's bounce off its 200-day moving average could prove characteristic of a 2nd wave of five waves down, wherein hints of strength displayed prior to initiation of the 1st wave down typically manifest. The Bullish Percent Index for the S&P 500 Financial Sector Index fairly substantiates this likelihood...


The effect of last October's massive short squeeze really stands out by this measure. No "balance" indicative of desirable fear whose presence normally would suggest that, were underlying circumstance truly bullish, a fair number of index components were constructively poised to join the party. Instead delivered was technical circumstance indicative of an Elliott 2nd wave of five waves down, whose positive qualities often exceed those registered during the advance preceding the 1st wave down (which in the case of financials occurred last year).

And now is circumstance similar to that last July. Coincidence this should appear at the very moment central banks find themselves increasingly powerless to further fake the trans-Atlantic banking system's solvency? I think not.

Fast Money
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