Grinding to a Correction ~ The Risk Averse Alert

Tuesday, February 05, 2013

Grinding to a Correction

To be honest today's turn lower probably but begins a period of time the market's technical state coinciding with its advance off mid-November 2012 bottom decidedly weakens, this in the lead up to prices correcting some significant portion of their advance over the interim. Suffice it to say that, being in possession of a solid decade worth of wildly mispriced garbage, trapped weak hands working a wad of liquidity courtesy of Capo Confetti likely will use the opportunity a woefully undiscerning media provides to continue dishing as much trash to the frightfully unsuspected and downright clueless as Britain shall avail.

As you can see, circumstance presently finds coincident technical measures—both RSI and MACD—just beginning to turn over. During upcoming trading accumulating underlying weakness these measures are likely to reveal should begin to materialize. Over the interim the S&P 500 probably is destined to reach a new intra-day high, how ever slight this might be.

Looking forward toward mid-year, I wouldn't be surprised if the S&P 500 remains confined within the range extending from 2012's respective highs (early April and mid-September) and lows (early June and mid-November). Already the index is pressing on the upper end of this range. So, any further upside remaining appears quite limited. Of course, a broader range of technical data displaying the market's underlying state likewise suggests any further advance likely will be limited. This, really, for quite some time now consistently has been thought the market's highest probably state—limited in its upside prospect—being technically substantiated for months and months on end in fact.

There is no question in my mind trapped, weak hands are biding time. An ever more muted daily volume of shares exchanged rather decidedly indicates claims at the bottom rung of the capital structure are by no means being accumulated as the market levitates ever more slightly higher. Instead, a broken price discovery mechanism is being exploited to cover for a still expanding burden of debt that positively must be added to the banking system to forestall its collapse. Unless the Mars Curiosity rover stumbles upon benevolent Martian life willing to backstop the bankrupt national treasuries and hopelessly insolvent central banks of planet Earth, there is positively no good reason to risk capital at the bottom of the capital structure when capital higher up is certain to come under grave pressure. Just as sub-prime mortgages not long ago came to be a predominant manifestation of putting lipstick on a [credit market] pig, this to the effect of exposing the banking system's profound vulnerability, revealing it to just about everyone save Jamie Dimon (or so he claimed, anyway), today's lender of last resort led effort to stimulate credit market activity to the effect of raising demand for debt up and down the spectrum and causing it to become uniformly mispriced—no way reflecting certain risk of revulsion—is doing precisely the same. That everyone who is anyone in fact knows this is plainly testified by ever more muted activity at the bottom of the capital structure. No one of any consequence really wants this garbage, and that's all there is to it.

Word on the Street
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