Stirred, Not Shaken ~ The Risk Averse Alert

Monday, May 04, 2009

Stirred, Not Shaken

Picking up where we left off Friday...

NYSE 5-min

It is possible the fifth wave of five waves up from March '09 bottom completed today. The buy-side [5-minute] RSI extreme registered shortly after today's open is a sight. If nothing else, this imbalance says some kind of top is near.


Note how over the past six months the market has been subject to bouts of weakness following sharp advances resulting in buy-side RSI, itself, turning sharply higher.

Volume remains suspect. Today's advance failed to widen participation. Today's was a big move, breaking higher out of a strained advance over the past 20 days. Yet, clearly, buying interest continues narrowing.

XLF (+10%) and BKX (+15%) both had monster, bear market-like moves today. Likewise, both appear subject to a steep correction from an Elliott Wave perspective.


Just another view among many suggesting underlying technical conditions are not broadening in strength. Nevertheless, like many other measures, we also see conditions failing to give any serious indication of imminent downside risk. Yet toward this end I remain most suspicious.

A rising market whose underlying strength is not broadening is subject to succumbing to selling pressure ... all in good time ... particularly during a bear market. We saw this last year: March - May '08.

What followed fit the moment. Much the same will what's to come fit this present one.

That's why, come next Monday (5.11.09), the NYSE Composite could be trading at its 50-day moving average. That's a 13% drop from here...

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Paul Davis said...

Do you follow Value Line indexes (esp arithmetic)? Look at that chart! A retracement of nearly ALL of post-Sept drop.

TC said...

Yikes, look at VLE! A straight up, 70% advance off March '09 bottom, taking the index close to last October's gap lower. Its 200-day moving average just proved meaningless resistance. Duly noted, however, is the fact this moving average continues declining.

An arithmetic view surely leaves an impression that, volatility has not abated one bit. I see, too, VLE topped July '07 rather than October. It was a trend leader.

Declining top trend line since '07 targets VLE at just shy of 2000 ... right in the area where it last traded the week Lehman cashed out (9.15.08).

VLE performance suggests widespread participation in the bounce off March '09 bottom. A dangerous thing in a bear market! Fitting an Elliott "B" wave, though (of an A-B-C down from 2007 top). This raises suspicion that, further gains could become increasingly selective ... much as one would expect in the setup for a third wave down (i.e. wave "C").

Keep an eye on this, Paul, and let me know when anything interesting appears to be developing.

Paul Davis said...

I am not chart expert but look at this LT view of VLE.

Look at RSI off of 2001 bounce and then followthrough after dip. A rocket ride, even with divergence. MACD currently is scary to me.

Your thoughts?

TC said...

Funny you should point out the late '01, early '02 period in VLE. This appears about where things, market-wide, stand right now ... due for a pullback, followed by another bounce.

MACD substantiates my [earlier] VLE, heightened volatility thesis. On the VLE Weekly chart MACD prospectively appears at a decisive inflection point on the sell-side here (i.e. just below 0). Deja vu, May '08?