Canaries in a Coal Mine ~ The Risk Averse Alert

Friday, October 09, 2009

Canaries in a Coal Mine

Looking back on the week, one might better have applied the Elliott Wave's "rule of alternation" in setting expectations. An increasingly negative technical undercurrent prevailing over the prior week (much as had been the case the week before) seemed to be setting the stage for still further weakness over the course of this week's trading. But this was not to be. A most curious development, indeed, particularly given last Friday's news that the physical economy's collapse continues unabated with another quarter million joining the ranks of the unemployed.

Just how precarious is the stock market at this moment is spoken by what appears an unwillingness to allow any significant drift lower, this out of fear that, bloated equity inventory cannot be sufficiently trimmed before the lug nuts fall off the dying, global, wildcat financial system.

Now, word has it that, sideline money is waiting for a pullback. Trouble is there's too much risk of this turning into a falling knife, so time is being bought while appearances are made to shine as capital-starved monsters sell their prized possessions and move one step closer to disintegration.

Canaries in a coal mine do not get much larger than Citigroup and GE. Yet tell that to money presently in the market!


Pathetic is a word that comes to mind viewing this week's NYSE volume. No fear in spite of tremors coming from two large players at the core of the financial crisis? The market climbs a wall of worry, not complacency, and in so doing increasingly more shares are offered up for sale, not fewer.


Following Monday's (10.5.09) slightly better short squeeze result versus the prior Monday's (9.28.09), each subsequent day higher this week — Tuesday, Thursday, Friday — saw fewer NYSE-listed issues advancing on the day. Trouble is were an advance likely to be sustained participation should broaden, not narrow.

One might duly note, too, that a narrowing of upside participation has been the trend since March bottom. Again, were an advance likely to be sustained you want to see participation broadening.


The NYSE Bullish Percent Index is but another underlying technical measure whose internal performance suggests the purposeful effort at keeping the stock market levitated is in all probability at a point where, soon, it will become increasingly difficult to continue.

Here, too, we see the failure of this week's reversal to engender broader participation. Thus, given the configuration of internal measures tracking $BPNYA, there is good cause for believing top is in and the market is beginning to turn over.

Fast Money
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