Banned From World Series, Chicago Fixes Market ~ The Risk Averse Alert

Monday, June 01, 2009

Banned From World Series, Chicago Fixes Market

Was panicked money — afraid of being left behind — responsible for today's rally?

If so, it must be some of the dumbest money ever to walk the face of the earth. Why would anyone willingly pay more for shares that, increasingly fewer players are bidding on? Volume today (particularly in large caps) was most unimpressive.

If consensus truly is bullish, why isn't all that sideline money stepping up and snapping up more shares? Indeed, why the charge today into short-term U.S. Treasuries?


Who knows? It could all simply be a function of excess liquidity seeking a home ... a little to the stock market and a lot to Treasury. However, I'll bet today's under-performing XLF and BKX had something to do with this rush to safety. (Speaking of under-performing, these two core sectors have been lagging since early May.)

Yes, I know, this is madness. Yet today's open upside follow-through to Friday's late-day [futures market driven] charge unfolded precisely as I thought possible.

OEX 5-min

A buy-side relative strength extreme always is suspicious. This morning's — having remained intact for about an hour(!) — is all the more so because there simply was no volume of note chasing the bid.

However, such a buy-side RSI extreme as registered this morning perfectly fits the outlook claiming:
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.


I wanted to key on the S&P 100 tonight because...
  • I am long a June OEX 400 Put.
  • Volume today truly was conspicuously light, especially given all the [futures market] juice coming from Chicago late-Friday, then pre-market today.
  • The stock market's "Generals" — its large capitalization issues, like those in the S&P 100 — continue lagging the broad market. In three words the significance is: very, very bearish.

Across all indexes the story is the same. Relative strength is diverging ... momentum continues turning over ... and upside volume is fading. As long as follow-through to today's advance is relatively limited, then uniformly deteriorating underlying technical conditions still set up for a strong move lower.

The likelihood this near-term negative outlook will bear fruit remains heightened by the fact a very contrived (futures-driven) advance seriously failed to excite wider interest (as evidenced by the relatively low volume of shares exchanged).

Tomorrow is another day and anything can happen (or so it might seem). Yet there were other bearish items of note resulting from today's trade...


On a day when everything was gangbusters, wire to window ... gapping higher at the open, and never looking back, nor coming under any serious pressure ... you would think advancing issues might swamp decliners by some notable margin. Not today however.

Considering extreme buy-side relative strength exhibited at the open, and seeing today's upside performers coming in relatively narrower in number, the quality of today's advance is called into question.

So ... volume today was a bust as was relative upside participation.

There is much, technically, "not right" about this. And it is quite fitting the Elliott wave count presented above with the S&P 100.


Despite all other "it's onward and upward" appearances coming out of sweet home Chicago, volatility risk actually widened today. So, it seems others, too, see through a fog masking time defying collapse and mistake it not for recovery.

Hey, I could be entirely off base here. If I am, then losses, post-Lehman bankruptcy, might be recovered in short order.

There certainly was no development today serving to heighten this possibility, however. So, I'll leave it at that and sleep on my stop-loss exit strategy (should it come to this) ... and give some thought to adding to my Ultra-Short ETF position (should my bearish outlook be vindicated).

Fast Money
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