Levitating Dead Money ~ The Risk Averse Alert

Tuesday, September 22, 2009

Levitating Dead Money

Speaking of levitating, following yesterday's options-given sense looking ahead, near-term, expecting just that...


The percentage of NYSE-listed stocks with bullish point and figure charts is ... off the charts.



I see nothing bullish about this. To my way of viewing things what's being demonstrated is such fearlessness one might rightly expect just prior to spectacular collapse.

Were there contrarily some degree of trepidation reflected via a more subdued balance in these measures, this year versus last, I might not be so confidently bearish. Yet it appears the world is so cocksure the worst is behind us that, there's more bullish interest in stocks now than was the case at the top in 2007!

Furthermore, viewing the performance of these measures in relation to the market's advance off March bottom — that is, the relative shallowness of it seen in contrast to the prior decline — one is left thinking something is not right with the picture. Indeed, this is a conclusion reaching even the stock market's leading issues...

DJIA weekly

Find me an instance in the past forty years when relative strength had rebounded so spectacularly and exceeded a prior reading, this while the Dow Industrials traded lower than was the case at that prior time. For example, consider the situation now versus May '08, then find an instance when something similar developed. Good luck.

Here, too, we see another long-term relative strength picture whose every indication suggests trouble ahead.

One thing about this relative strength picture yet before mentioned intersects the manner in which I use RSI to help confirm an Elliott 5-wave sequence. Observe how the price-RSI relationship now versus May '08 leaves open the possibility that, presently, a 4th wave [of five waves down from October '07] is forming. This suggests the end of the trend since October '07 lies straight ahead, following the upcoming 5th wave whose downside price action might be rather devastating.

This possibility is in keeping with a view put forward in May. So, now, RSI seemingly raises the greater likelihood of this possibility.

Bear in mind, too, even were this to play out and a [much lower] "bottom" to form over months ahead, present index levels might be the best seen for many years to come. Unlike what has been the case off March '09 bottom, a period during which a floor is built under stock prices likely would develop, and this, of course, will require time during which relatively little improvement will appear in the stock market, at least on the surface. The situation "under the covers," however, should markedly improve — much as was the case from July 2002 - March 2003 — with a measure of underlying fear likewise remaining present, even after the floor is built.

Thus, you see why, looking out years ahead, I dare call equity "dead money." Of course, there is nothing set in stone about this view. Yet I must say that, its technical substantiation is rather compelling. Wouldn't you agree?

Fast Money
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