NASDAQ Projects a Great Disappointment ~ The Risk Averse Alert

Friday, February 19, 2010

NASDAQ Projects a Great Disappointment

Yesterday's McClellan Oscillator view presents evidence this week's advance is from Elliott Wave perspective third-wave-like. Specifically, wave c of 2 (of five waves down), most simply, is thought to have unfolded (as seemed likely last Friday).

As you saw yesterday, both McClellan Oscillators presently are behaving very much like each did during third waves that unfolded over the duration of respective post-March '09 counter-trend rallies. Wave c of 2, therefore, is confirmed by this.

More critically, this increases possibility top was reached mid-January 2010 — a point of view particularly bolstered by a many months-long deterioration of both NYSE and NASDAQ McClellan Oscillators up to that moment.

So, here we are ... at the precipice it seems.

$NYAD cumulative

And there is the NYSE's cumulative advance-decline line portraying the happy masses who by ETF are spreading the bid and facilitating a greater distribution...


Talk about on your back. The above two pictures, taken together, present a case for claiming a distribution has been effected since March '09 bottom. This view is further supported by far different — and quite revealing — conditions on NASDAQ. More on this in a moment.

About that 50-day moving average above a rising 200-day moving average... What similar behavior to 2007's roll-over might be in store? The rule of alternation implores the Elliott Wave analyst to expect something different. Good council here, too, because the 200-day is less positively positioned today versus '07.

Back in late '08 I pointed to the likelihood that, post-Lehman bankruptcy week (September 15, 2008) might present a point of resistance across the broad market. Well, will you look at that.

$NYAD cumulative

In the past I have suggested NASDAQ's cumulative advance-decline line confirms the fact that, in the land where animal spirits roam most issues are consumed in a death spiral. Recent weakness suggests this fact remains intact.

Quite simply, bull markets are sustained by growing animal spirits, not shrinking. Thus, the above presentation of NASDAQ's underlying condition seen in conjunction with the same on the NYSE continues suggesting the death knell of equity, in general, still resounds.


Quite evidently, the greater preponderance of underwater, NASDAQ-listed issues are being held in hope of a turnaround, I suspect, while a relative handful of popular issues lift this broad measure disproportionately higher.

So, not only are animal spirits absent, a greater majority of sinking prospects are being held in hope their fortunes will turn for the better.

This is nothing less than a recipe for a Great Disappointment.

Fast Money
* * * * *

© The Risk Averse Alert — Advocating a patient, disciplined approach to stock market investing. Overriding objective is limiting financial risk. Minimizing investment capital loss is a priority.

Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.

Nothing is set in stone. Nor is the stock market's path of least resistance always known. More often than not, there are no stock index option positions recommended.

There's an easy way to boost your investment discipline...

Get Real-Time Trade Notification!