A Sucker Bottom ~ The Risk Averse Alert

Tuesday, July 01, 2008

A Sucker Bottom

I don't know if you ever look at the various technical measures I use to substantiate my Elliott Wave outlook, but their position following Tuesday's trade was truly a thing to behold.

Have you ever known of someone old whose infirmities have increased with advancing age to the point where their prognosis does not at all look good ... then, suddenly one day they appear quite well, as though they might make a miraculous recovery ... only to die the very next day?

That's exactly what the stock market looks like.

On the surface today one might wrongly conclude the worst is behind us. I believe nothing could be further from the truth. There is nothing under the covers even remotely hinting I might be wrong continuing to suppose the worst trading of the past year is moments from breaking onto the scene.

One thing I found interesting today... European bourses were crushed, but the U.S. market found legs.

Was it foreign (i.e. U.S. based) selling that brought down Europe, and was this done for the purpose of raising capital to support the U.S. market? If so, that's not the way to enlist allies who will lend help in a time of need. Rather, it's a way to make enemies. Whether this observation is valid, time will tell. It certainly fits a pattern of growing tension between the U.S. and Europe, though.

OEX 5-min

RSI performance prior to this afternoon's rally strongly suggests there's more selling yet to come.

First, leading up to today's mid-day bottom RSI's recovery (Friday, yesterday and early today) was nothing short of weak. Typically, you would expect a much more significant RSI recovery prior to a solid bottom being formed.

Now, we did see a more representative RSI recovery coincident with this afternoon's market surge. However, RSI performance Friday (6.27.08) through today is exactly like what developed Monday (6.23.08) through Wednesday (6.25.08) last week. This time around, though, sell-side weakness has been notably greater over the interim. This is fitting, indeed, considering this Elliott Wave Guy's expectation the next wave down probably will be the most damaging decline of any over the past year.

One other price-RSI consideration suggesting the S&P 100 will fall still further was evidenced during today's two surges to new, post-5.19.08 low ground — first at the open and then around mid-day. In the each instance RSI confirmed the S&P 100's move lower. If the index were bottoming, RSI typically would diverge instead.

Finally, per RSI's strong recovery coincident with today's reversal higher... This may be a case of "over-analyzing" RSI in the context of imminent expectations for a crushing market decline, but I was thinking any present bounce in the S&P 100 might result in RSI falling well short of levels it reached during last week's bounce Tuesday (6.24.08) and Wednesday (6.25.08). My thinking was this would substantiate the market's greater weakness at the present moment, relative to last week.

Well, turns out the S&P 100's RSI has risen right about to peak levels it reached last week. However, one thing worth noting is how the "straight up" price-RSI recovery from a greater depth than was the case last week might be seen as a manifestation of the same old, same old complacency I have been noting of late.

I did not get a chance to watch any of the CNBC programming after today's close. Was there any notable conviction a bottom is in? Please leave a comment if you have anything of interest to report along these lines...

NYSE 5-min
NASDAQ 5-min

Looking at broader market performance we see RSI recovery falling short of peaks reached during last week's bounce. This was what I was expecting.

Should this hold up, I might suggest this fits the bigger picture. Imminently anticipating a crushing decline in the stock market, it stands to reason weakness would broaden and be evidenced over a wider swath of the stock market, much as we have seen over the past few trading days.

It certainly has been the case these two broad measures have been losing their recent luster. And this is amply being reflected under the covers. You know the usual suspects. Go to StockCharts and see for yourself.

If you see things as I do, you likely will come away thinking the same word I thought in summarizing my conclusion: pathetic.

So, today's rally only added more reason to look out below...

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