Market is overpricing risk (update 7) - Dow volume diminishing, traders are underestimating massive goverment intervention (FX)

What we are witnessing now are massive distortion/s in the markets. Reverberating from Japan's USD buying and YEN (global) selling, with the rest of Asia getting itchy trigger fingers. A trader (certain hedge fund) wakes up on Thursday morning, says in a note (wires) that Japan intervention hasn't worked in the past, won't work now. Yes traders had shorts on the USD cross against the YEN, were anticipating a 0.83 USD breach. But selective memories are deadly ones, do they remember when the EU pumped a Trillion plus to protect the EUR? Hedge funds got slaughtered when the EU/ECB drew a line on 1.20 (EUR); check your charts, the market ever since has been unable to test the 1.20 support. The market is up against a massive goverment/central bank intervention program, yes it will fail and fail spectacularly (on a global scale). But in the mean time the market will run with the central bank intervention; as in shorting YEN, buying USD. As Asia will eventually follow suit with Japan in 'total' currency devaluation, like a drug they won't stop. Of course this will lead to a full scale trade wear with the US.

This will cause the USD to be bid as risk aversion hits hard, tariffs will take place on ALL Asian imports (to US). The US will attempt to sweat Asia to try and revalue exports to US liking. The whole thing will end in tears. So it would be foolish to assume that Japans intervention is a one off failure, commodity producing nations will also start to devalue currencies (as Iron ore/commodity imports to Asia will become more expensive), such as Colombia (already started to devalue the PESO), Argentina and Brazil.

The market is still overpricing risk on stocks and certain risk buys like industrial commodities, commodity currencies. A concerning factor would be the range trading of the Dow and S&P 500; mixed with thinning volume, with a marked up distribution, means (if not just retail investors) most buyers are overpricing stocks on smaller capital re: volume.

A 'flash crash' style sell cannot be ruled out near term

refer to declining volume buys on the Dow:

Note the August 31st low @ 9915.73 volume @ 2,917,990,000 (on close price 10,014.72). Current close (15th Sept 2010) @ 10,572.73, volume @ 3,369,840,000, down from the previous volume @ 4,521,050,000 (14th Sept 2010 close @10,526.49)

(Any up-tick on buys on smaller volume = a coming sell off. Could be major, depending on the market uncertainty and distortion reverberating from Asia/US/Trade war/FX de-evaluation.)

Sep 15, 2010	10,526.42	10,609.21	10,453.15	10,572.73	3,369,840,000	10,572.73
Sep 14, 2010	10,544.81	10,622.69	10,460.34	10,526.49	4,521,050,000	10,526.49
Sep 13, 2010	10,458.60	10,605.73	10,458.45	10,544.13	4,521,050,000	10,544.13
Sep 10, 2010	10,415.01	10,502.80	10,376.34	10,462.77	3,061,160,000	10,462.77
Sep 9, 2010	10,388.22	10,515.86	10,359.23	10,415.24	3,387,770,000	10,415.24
Sep 8, 2010	10,338.57	10,460.50	10,318.93	10,387.01	3,224,640,000	10,387.01
Sep 7, 2010	10,446.80	10,448.99	10,304.44	10,340.69	3,107,380,000	10,340.69
Sep 3, 2010	10,321.92	10,484.71	10,321.92	10,447.93	3,534,500,000	10,447.93
Sep 2, 2010	10,270.08	10,350.98	10,211.80	10,320.10	3,704,210,000	10,320.10
Sep 1, 2010	10,016.01	10,305.87	10,016.01	10,269.47	4,396,880,000	10,269.47
Aug 31, 2010	10,006.42	10,101.53	9,915.73	10,014.72	4,038,770,000	10,014.72
Aug 30, 2010	10,145.58	10,170.10	10,005.56	10,009.73	2,917,990,000	10,009.73