Natures Way ~ The Risk Averse Alert

Friday, November 27, 2009

Natures Way

This is a good time to contemplate near-term possibilities in the divide separating a market whose material support demonstrably is contrived (though likely consisting of well-healed interests) ... from fundamental reality whose power to deliver frightful surprises is being stoked by Monetarist Monkeys who confuse great walls of liquidity with real, wealth-producing, physical economy.

Although there continues to be an abundance of technical and fundamental reasons for believing equity is dead money — much as has been the case for the vast majority of exchange-listed issues over the past decade — there also is every reason to believe those private and public interests whose world today is crumbling all around them are capable of maintaining contrary appearances for a time longer than weak hands in the bear camp might otherwise wish.


Trend-leading NASDAQ presents a weakening RSI and MACD configuration not yet matched by other major indexes. Any thought supposing stocks in general are bullishly positioned should be tempered by this fact because, lacking is any demonstration of such animal spirits as otherwise would shed disproportionately more love on the more obscure issues listed on NASDAQ. Indeed, less love is being demonstrated via the NASDAQ Composite's notably weaker relative strength and momentum performance since early-July. Contrasted with the performance of the same technical measures applied to the NYSE Composite index over the same duration (see below), the message plainly is bearish.

Much the same is revealed by the severely lagging measure of NASDAQ-listed issues participating in the advance off March '09 bottom. Thus, the trend-leading NASDAQ is seen unmistakably pointing the way lower.

The question right now is, how much lower? Like I said Monday, despite being extraordinarily bearish I am loathe to call a top because, like I said Tuesday prior, it's possible the 3-month and running circle jerk thus far endured since July's monster short squeeze could continue a while longer.


Back in September I put forward an Elliott wave count possibility along lines you see above. No reason why this view is any less likely than the other more frequently presented wave count you have seen for wave C of (B) off March '09 bottom. No reason whatsoever.

(Elliott wave analysts — myself included — sometime have a tendency to "rush" the wave count. This is an instance — even were a rush to judgment suspected — where haste is forgivable for two reasons. First, there is rock solid technical confirmation of the more frequently presented wave count — delivered via RSI and MACD — and second, January '09 began with continuation of a c wave from late-December '08 whose dimension and duration mistakenly was thought likely to be greater than turned out being the case, so this precedent, indeed, gave reason to exercise heightened caution in projecting the Elliott wave count for wave C off March bottom.)

The above Elliott wave count shows wave 4 [of five waves up from March bottom] presently forming. Unlike the case with $COMPQ, though, $NYA's RSI and MACD have yet to take out respective lows set in July. Being that early-July marked the end of the "fourth wave of one lesser degree" (i.e. wave iv of 3), one might better expect both RSI and MACD to register lower readings ahead, sometime during the formation of wave 4 of C of (B).


One reason to suspect well-healed interests — those whose buying going into March bottom and immediately thereafter — might gain added time to milk those [mutual fund/pension fund] goats buying at these levels is presented by the "Peace and Safety" mindset willingly bidding widely-held Dow stocks more aggressively of late.

Why wouldn't today's 1929-like "Plunge Protection Team" take advantage of this opportunity to offload as much dead equity as possible, now that circumstance far outside the control of the Fed and the U.S. Treasury has shown its ugly face? Team Fraud already has been at this effort for four solid months now! So what's a few months more, then, pretending an endless stream of the worst news possible soon will abate?

Sometime last year I noted my tendency to require the passage of time before trading awakens a well-formed analysis. You might say this is the case in my supposing a "Plunge Protection Team" saved the market from total collapse earlier this year. This but recently offered conclusion gained credibility only with the passage of time in which the volume of shares exchanged sharply contracted. Were anything other than a "God save the queen!" element supporting equities (and at this point in history, quite literally so!), the relative collapse in buying interest revealed by volume's noteworthy contraction over the past several months would not have resulted.

Ditto, too, my recently offered conclusion claiming the bear camp remains in complete control. In truth — and this is just nature's way — today's Plunge Protection Team is no more bullish than were their forefathers in March 1930, just prior to the very worst of the stock market's Great Depression throttling...

Fast Money
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