Bluff The Magic Dragon ~ The Risk Averse Alert

Thursday, September 06, 2012

Bluff The Magic Dragon

Well, according to the 10-year U.S. Treasury Count Draghi-ula is all bluster, neither a compelling equity risk-on, nor a bond vigilante nightmare. As such, trash whose value hinges on bankrupt albatrosses receiving far more than a Brussels Reichsbank's empty promise thus line up for a new bull market in Vaseline...


Bend over, boys. When everyone has been suckered "all in," who's left to bid up your far larger pile of overpriced garbage? It certainly was the case sideline money found no compelling reason today to up the ante (see volume). But another short-squeeze-a-thon furiously applying lipstick to the largest herd of pigs yet this year—this as the open market has lowered its price on the farm (see $NYA)—indicates desperation hoping to sustain the market's levitation is growing acute.

And when have we seen this before? Why, July 2011. Dum-de-dum-dum. And speaking of dumb, leave it to Shemp not to miss a beat.

Nowhere to be found among issues setting new 52-week highs was the creme de la garbage. Yet, of course, being heavily shorted laggards, the Count's bluster brought a heaven-sent surge almost good enough to bring the living dead to lead the market higher today. This distinction, however, instead went to Paper and Semis, no doubt the thinking being central bankers will be open-endedly hyperinflating with these. After reviewing the technical state of about a half dozen hopelessly insolvent albatrosses following today's short-squeeze-a-thon I couldn't find a one not overbought and prime for the bleeding.

That's not to say out of the question is a few days more spent reeling in the last of suckers who believe central banks deploying open-ended hyperinflation are sure to restore a status quo that in fact is forever lost. Yet with an eye still watching momentum of both the CBOE Put/Call Ratio, as well as the VIX, we find both measures concurring a dicey undercurrent taints the bluster coming from trapped central banks, and could bring a nasty surprise much too soon to those high on a European fake.

Fast Money
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