Now, it very well could be Confetti has outlived his usefulness even among dyed in the wool imperial monetarist marionettes in leadership positions in the U.S. federal government. Time will tell. The person nominated to become new Fed capo likely will decide the matter (still, that it now appears a virtual certainty a new Fed chair will be seated in January 2014 is astonishing, no matter how the media is continuing to downplay this). If an austerity ghoul gets the bid, then we should have little doubt a financial crisis gravely threatening the trans-Atlantic banking system, first and foremost, is likely to explode onto the scene. As was suggested yesterday, a turn onto the road to "bail in"—broad daylight theft of bank deposits—could be the objective of this week's stunning attack threatening the fantasy-filled fortunes of bailout junkies. We probably can expect Europe to bear the brunt of any "bail in" heist, as banks there are "horribly undercapitalized" according to FDIC Vice Chair Thomas Hoenig, with Asia being antagonized by an unprecedented exodus of hot money migrating to the insolvent [dollar/pound] core of an über leveraged global casino. Both today's throttling of euro-zone periphery bond markets and a growing liquidity crisis in China rather decidedly substantiate this outlook.
Elevating the relevance of this analysis is the fact that, a lot of garbage was thrown out today...
There likely was a significant surge in margin calls hitting leveraged speculators today, as longer dated U.S. Treasury securities offered no refuge to revulsion at the bottom of the capital structure, where the number of NYSE-listed issues hitting new 52-week highs versus lows fell notably deeper into the negative. So, "everywhere" was selling likely raising needed margin capital. Still, the U.S. dollar caught a bid as a result of a Pavlovian rush into short-dated U.S. Treasuries, and this, bottom line, is critical. "Currency" facilitating asset grabs from the carnage of a fire sale will be critical at the appointed hour when the trans-Atlantic banking system is in the vice grips of its anticipated "bail in."
Still, it is not difficult to imagine a leverage unwind whose consequence absolutely throttles the U.S. dollar. The challenge upcoming will be containing the fire so that just enough carnage is produced to stabilize a shrinking pie of economic and financial enterprises. This is no different than in 2008, and yet the "action" is likely to prove considerably more violent.
Well, we got what we were looking for in terms of declining issue participation. Yet a positive technical divergence registered by $NYAD's MACD (see bottom panel) raises prospect a respectable bounce soon could materialize. We need see the NYSE advance-decline differential spike higher, like last Thursday, before confidence in this likelihood can be raised.
Now, also today the NYSE advance-decline differential fell below its mid-November 2012 low. Going with the assumption that, a 4th wave of 5 waves up from early June 2012 bottom is forming off May 2013 peak, technical deterioration, 4th wave versus 2nd wave, is to be expected. So, already established underlying weakness displayed by the NYSE McClellan Oscillator in this same context, 4th wave versus 2nd wave, is effectively confirmed by today's setback.
Nevertheless, it is unlikely the corrective wave forming off May 2013 peak is completed. Even given the likelihood of an upcoming bounce, some additional weeks spent churning in a more or less sideways trending market could materialize as other technical measures join the NYSE advance-decline differential and the NYSE new 52-week high-low differential in confirming the market's increasing underlying weakness.
Two cases in point are the NYSE Composite index's RSI (top panel) and MACD (bottom).
Particularly given the NYSE Composite's long-noted performance disparity vis-a-vis the NYSE's cumulative advance-decline line, as well as in relation to other major indexes since March '09 bottom, we probably should expect the above noted technical measures to confirm increasing underlying weakness accompanying the markets advance since June 2012, much as the $NYHL and $NYAD already have. Thus is current anticipation that, the corrective wave forming off May 2013 peak likely will be some weeks further developing.
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