Counting the Seconds to Collapse ~ The Risk Averse Alert

Thursday, March 04, 2010

Counting the Seconds to Collapse

Given the manner in which trading proceeded from yesterday's peak, prudence advises a slight alteration to the Elliott Wave count off last Thursday's bottom. This only slightly changes the view put forward over the past two days...

SPX 5-min

Still the same 3-3-5 Elliott corrective wave (up) from early-February bottom. Only the wave count assigned to the five waves forming wave c has changed.

Relative strength coinciding with these five waves forming wave c substantiates the wave count indicated above. We see typical RSI behavior during formation of wave iii of c, and again during the formation of wave iv of c (by way RSI has weakened relative to wave ii of c).

It's possible wave iv of c completed today and wave v of c is in progress. Contrarily, wave iv of c might finish tomorrow before wave v of c unfolds. I am siding with the former possibility, and suspect wave c of 2 (of five waves down from mid-January top) will be completed tomorrow.

The technical backdrop supporting the possibility of a first wave down from mid-January and a second wave up from early-February remains entirely intact. The seeming resiliency we presently are seeing, without question, is fitting the moment. Considering the awful bout of selling projected to occur over months ahead and likely persisting over the next several years, there is little surprise every effort would be made here to buy time, allowing strong hands one final opportunity to brace for the worst.

Even if mid-January's top is exceeded in the immediate period ahead, the song of doom I sing in all probability will remain the same. In this instance all that is likely to change is the Elliott wave count off March '09 bottom. The now well-established case demonstrating share distribution from strong hands to weak, as well as a thorough lack of "animal spirits" necessary to sustain an advance is critical circumstance whose negative portent is not likely to be altered anytime soon. Any continuation of the market's relatively flat levitation over the past six months is likely only to result in but a little more time being bought before the lug nuts fall off.

Now, there really is no point putting odds on this possibility that, the next leg lower in the Elliott corrective wave that began in October 2007 might yet again be delayed. Although there is very good reason to believe this anticipated decline already has begun, nothing about the prospect is set in stone, of course.

Still, rather indisputable right now are those matters of underlying technical substantiation reflecting the state of common stocks. These simply demonstrate a building weakness vulnerable to serious challenge (by way of detonators more numerous than ever before in modern history). This condition is not likely to change, regardless of whether the counter-trend rally off March '09 bottom has completed (as is more strongly suspected) or not.

Fast Money
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