Insolvent Albatrosses All In ~ The Risk Averse Alert

Wednesday, September 19, 2012

Insolvent Albatrosses All In

With technical measures detailed here over the past two days rather suggesting the market is likely to spend some time forming a top before turning over, the following returns to prospect that 5 waves up from June 2012 bottom will complete an a-b-c "zig-zag" up from October 2011. Once this "zig-zag" higher completes, 5 waves down taking out last year's low could follow. I say "could" because there are other possibilities. Among these is prospect the presently forming middle wave of an a-b-c "zig-zag" up from March '09 bottom — this developing since February 2011 — could evolve in a more complex fashion (i.e. a "double-" or "triple-three," or a "triangle") and likewise hold major indexes above the well-established line of support indicated below.

The above, simple 3-3-5 "flat" projected to form wave (b) of B since February 2011 targets the vicinity of the S&P 500's rising trend line off its 1974 bottom. This trend line was touched in March '09 when wave (c) of A completed, and stands to provide support again during formation of wave (b) of B. Should this trend line's retest not occur during the market's upcoming decline, while at the same time the line of support indicated above likewise holds, then there probably will be a good case for assuming wave (b) of B will take a more complex form than the simple 3-3-5 "flat" indicated above. Still, at some later point in the development of wave (b) of B the S&P 500's rising trend line off its 1974 bottom probably will be retested.

Particularly relevant right now, I think, is the juicy tidbit Mark Hulbert revealed during tonight's "Fast Money" broadcast. Apparently, all but 1.9% of stocks in the S&P 1500 (combining large caps, mid caps and small caps) are rated by Wall Street analysts as a "hold" or higher. Hulbert called this an incredible statistic. Considered in the context of persistently diminishing volume registering as major indexes are squeezed higher, it certainly suggests hopelessly insolvent vested interests are "all in" — like I have been saying, hanging on for dear life. Thus could circumstance be conducive to a collapse like that indicated above, taking out 2011 lows and setting up for a "God, save our sinking ship," panic-driven short squeeze positively dwarfing last October's. Endless liquidity central banks are committed to throwing at an insolvent banking system only heightens the possibility that, still-to-come wave (c) of B higher could prove both short-lived and simply spectacular.

Fast Money
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