Variations on a Corrective Theme ~ The Risk Averse Alert

Wednesday, February 03, 2010

Variations on a Corrective Theme

How many times does a given moment's seeming similarity to some prior occasion not pan out?

The answer is more often than not. One might say the Elliott Wave Principle's "Rule of Alternation" has applicability in instances like these.

Today's trade transpired largely as expected, yet the turn off bottom was less than inspiring. Then, come to find out a terrorist attack on the U.S. is thought to be imminent (lead story tonight on ABC News). With Team Fraud's political cover increasingly taking heat, consider the news a red flag.

SPX 5-min

There's a reason I drew a channel yesterday containing the advance from Friday's low. It's possible that, the five waves expected to form wave c of 2 already have unfolded.

No doubt, $SPX behavior this morning more or less matched expectations. Yet RSI was hit a bit more than thought likely (taking into account July '09 [daily] RSI behavior noted yesterday).

All the more concerning per any thought of further advance in the formation of wave c of 2 is relatively flat $SPX recovery this afternoon while RSI came into buy- and sell-side balance. Were projected similarities to July '09 valid, it seems $SPX recovery would have been stronger and RSI would have been carried into the decided buy-side of its range.

Thus far, then, correction of wave 1 [down] from mid-January top has traveled right to where an Elliott Wave analyst might expect — i.e. the range of wave iv of 1.


Except for a rising 200-day moving average (no minor consideration in the grand scheme of things), technical deterioration abounds. With the 50-day moving average trending lower ... RSI firmly locked on the sell-side of its range (having now corrected to the vicinity of buy- and sell-side balance) ... MACD also turning negative (likewise presently correcting some) ... and volume contracting over the course of this week's bounce ... it's possible correction of the first wave down from top might not carry indexes much higher.

Still, further sideways trading in a tight range (similar to the mid-November through mid-December period) is thought possible...


Although, longer-term, there is a strong case for claiming greater technical deterioration on NASDAQ versus the NYSE (thereby supporting my bearish, "absence of animal spirits" thesis), nearer-term (i.e. since mid-January top), the underlying technical condition on NASDAQ has not deteriorated as greatly as has been the case on the NYSE.

Thus, there's reason to suspect the anticipated third wave down from mid-January top (i.e. wave 3) might be delayed until such time as correction of the first wave down results in various derivative technical measures becoming "better poised" in preparation for a gassing. Were not NASDAQ behaving better here (per its Bullish Percent Index) I might not be so inclined to think this.

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Anonymous said...

From the charts I'm looking at, the SPX will most likely take a run to 1300ish some time this year. Then, you might see a pullback to the 950ish area before resuming upwards.


TC said...

In my book it is abundantly necessary that, animal spirits lift a widening swath of listed issues for a sustained bull market to unfold. Today, however, animal spirits are absent: a condition I have objectively identified here for many months now.

Just how the bull market you suggest is ahead is supported by your charts will remain a mystery. There are but links to other blogs at your blog ... and a link to my blog is not at the top!

Do your readers a favor: get it there.