Monsieur Market Says, "Give Me Volume or Give Me Death" ~ The Risk Averse Alert

Wednesday, August 27, 2008

Monsieur Market Says, "Give Me Volume or Give Me Death"

Could last year's stock market peak be the beginning of the end — the kick-off to a multi-year bear market whose dimensions prove historic? The character of the market's bounce off its July '08 low — even more so than earlier this year (i.e. March - May) — highlights this probability.


Much as was evidenced during the market's recovery from its March 17, 2008 bottom, volume following July's low has been just plain pathetic. This is a rather revealing development. Let's see if it persists. Diminishing volume coinciding with a rising market is the kiss of death.

Trouble is there may be no further, decisive move higher from here (say, like occurred during the latter half of April '08).

No doubt, technical measures such as RSI and MACD — both much improved from July's bottom and reasonably well-positioned at present — suggest the market could continue holding up. However, both measures are beginning to fade at a foreboding threshold. Once again, direct your attention to December '07. Remember a few weeks back when I highlighted the present period's similarity?

Also noted then was the S&P 100's 50-day moving average acting like a brick wall. Further problematic is the fact that, despite the market's maddening levitation, the 50-day moving average continues to fall (not to mention its deteriorating relation to the 200-day moving average in comparison to December '07).

Now, I do not know how soon July's low will be taken out. However, I am rather certain Cramer does not know his bottom from a hole in the ground.

And about the market's melt-up prospects ... am I suggesting this is off the table?

Not necessarily.

Yet at the moment an incredible complacency quite evidently remains in vogue. Thus, it is wise to ask:

Are suspicious circumstances accompanying both pathetic bounces following each of this year's two turns lower revealing a classic distribution?

If this proves to be the case, then last year's peak might not be exceeded for years...

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