Wednesday, December 14, 2011

Self-fullfilling prophecy and nuclear market fusion...

Much to the chagrin of many of the bulls and pseudo professionals out there, I posted the “Panic” post Fed Panics, ECB Panics, China Panics last week. I think that it is painfully clear that this post was a more than apt description of what has occurred. I find it interesting that one Steve Nelson found it necessary to publicly denounce, in a dubious manner and moronic fashion, my analysis with a highly disapproving and demeaning review.

As I have said many times, I state my view and I do not attempt to be more or less right than I deserve to be. However, I must say that the death nail for trading is complacent and ambivalent analysis. One can be short and wrong in a bull market and still make money and long and wrong in a bear market and still make money. One can also be short and wrong in a bull market and/or long wrong in a bear market and get totally killed. The difference is subtle but significant. There is no room for ambivalence or complacency n markets or analysis. The thing is getting it “wrong" is not a disaster - whipsaws, unclear thinking and lack of discipline, however, are a disaster. Half baked and ambivalent analysis that is committed to nothing, leads directly down that path and sets a trader up for compromised decision making and half hearted reactions to conditions that may come to pass. markets and trading, as living life to maximum potential, requires maximum integrity. So, as you may deduce by now, we did not waffle with regard to our analysis, trades or systems and are having a stellar month after a particularly strong November as well.

At this point, I wanted to indicate that, there is still lingering hysteria in the air of that has led nearly every Elliot wave analyst and nearly every blog I have been sent or seen to promote bullish scenarios as of the weekend, people continue to be very bullish expectant of a bounce to 1340 on the S&P500 into Christmas and expectant of more support from invisible hands. To me this is just horse hockey complacency from people who are focusing their efforts on following the least controversial call. The reality is we have just about crossed the line to where the selling we are seeing will create a fairly long-term and persistent state of selling which leads to more selling which will in turn lead to even more selling. There are many reasons for that, among them the mass insolvency in our leveraged financial system in addition to the de-amplification of money that is currently propagating like malaria in South African plains. Dollar funding is acutely in short supply yet equity markets appear to be holding up - a case that emboldens silly arguments from bulls promoting the ideas suggesting "bad news is now good" since equities are holding up.

To my way of thinking two very bad things happened today, the markets dropped below support with the euro suffering a tremendous breach and the VIX also dropped indicating total lack of preparedness or concern over the state of the risk in the markets. Additionally, the absolutely mammoth divergence I presented in my weekend charts between the EURO and risk assets continues to expand. This will be closed and is now requiring a significant double digit drop in the equity markets just to come back into something near correlation. Everyday the EURO drops the internal tension in the markets becomes more acute increasing the risks of a MAJOR market dislocation of some kind. The financial engineers have played their game and lost, the Central planners have too. They are now lost without their GPS.

In either case, there is not much that planners can do to create market stability and available funding for the rapidly contracting pool of available dollars…as the risk markets tail off here they will create  the flatulence of rapidly disintegrating values. This is NOT the time to try to bottom or top tick anything, its the time to keep your powder dry and make sure that you are SAFE. Now is the time to stop thinking “How much am I going to make” but rather “How much am I going to keep”. This includes getting some of your money somewhere safer than a leveraged institution.

We are now headlong before a massive Tsunami and the financial system is Fukushima.
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