As Goes GM, So Go Many a Financial Asset ~ The Risk Averse Alert

Saturday, May 30, 2009

As Goes GM, So Go Many a Financial Asset

What in the world happened Friday, 3:00 - 4:00 p.m.?

OEX 5-min

All "like from like" similarities were progressing so perfectly. RSI was contracting to buy- and sell-side balance as the S&P 100 continued correcting its 5.20 - 5.21 decline ... then bang, she went straight up into the close. In the last hour both the OEX and its RSI defied my expectation.

So, what to make of this?

Well, there might be follow-through at the open Monday. However this likely will not change my near-term, negative outlook one bit.

The Elliott read continues to see the market's counter-trend rally off March '09 bottom ending early in May. As first suspected about a week ago, it looks like some 3-wave, Elliott Wave formation has been unfolding since. This week's trading simply advances this probability.

Any advance out of the gate Monday, following Friday's late-day surge, should only bring the market nearer the end of the middle wave — wave b — of the 3-wave, Elliott Wave down, forming since early May.

As long as the underlying technical state remains supportive of this view, then one of these days the third wave of this formation — wave c — should bring the sharp move lower I am anticipating.

If nothing else, this past, holiday-shortened week demonstrated volatility is alive and well...

Tuesday (5.26.09) began with quite the determined reversal. Then to close out May taking both NYA and COMP to the slightest of new highs ... doing so largely during the final 15 minutes of trading ... seems so purposely contrived, given still diminishing volume of trade at present lofty levels.

One thing I suspect the mainstream has spent too little time contemplating...

The spillover financial affect on all things connected to GM's pending bankruptcy. If in hindsight some quarters believe it was a mistake to let Lehman Brothers go, I am wondering if in hindsight GM might prove the same. Hard to imagine this sort of thing (given GM's size) being associated with anything other than the next leg down in the stock market.

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