Friday, May 6, 2011

Market dislocation coming to a computer near you...Swan Dive part deux

...very likely early next week...Bill Gross's metal (aswell as many others metal) will be tested...there is a chance that the metal will not be able to hold without capitulation...we are at the point where certain markets need to BOUNCE hard here and now...or risk an acceleration to the downside. At this point, the risks of that acceleration have increased dramatically. Bill Gross, for example, now has 18% (strike that 23% is now the number) of their in assets under management short treasuries. Covering their $240 billion in treasury shorts is not a simple matter and will take some time - unless, of course, they are blown out - which I think is a distinct probability. The results of a capitulation in that position would cause a dramatic bond rally further deepening the current liquidity stress on the risk asset classes. The liquidity contraction is further compounded for our friends at PIMCO because of the issue of the debt ceiling...if the Treasury can not issue copius amounts of new Treasury bills then, of course, there will be a supply problem for Treasuries. This will reveal itself in the market as higher bond prices due to natural demand...Though everyone seems to be focused on China, Japan (among others) selling our good ole US Treasuries there has been an all out stampede into them...and I wonder why? If you want to understand why, I suggest a reread of my previous post: Swan Dive...the real picture...

The picture is getting very interesting and BURNanke will be toast soon enough...of course, I am long the dollar in size in the low 73's on the DX contract (that's upper 72's on the index) and short the equity indexes. Extremely, dangerous chart patterns here and lots of credit contraction and portfolio stress among market participants building for a crescendo.  I will post details on the weekend...but I would be very concerned to have long positions without insurance going into next week...Nothing may happen...but certainly the odds of some significant market event look much higher than one should ignore at this point. And the most important question is how much upside is there really here if you are long? Not very much with the Russell holding a 100+ PE ratio.

This chart is looking right on far we have most likely completed wave b of an a-b-c for the red "a" wave down..."c" of "a" targets 780 on the TF. (This chart has not been updated, its the one from the other day...I will post updates on the weekend.)

Have a great weekend.
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