Lower, Slower, Over the Next 12 Months? ~ The Risk Averse Alert

Tuesday, May 18, 2010

Lower, Slower, Over the Next 12 Months?

Considering the similar evolution of price action off March '09 bottom with that occurring during the market's counter-trend rally off March '08 bottom (that is in relation to respective declines preceding each rally), near-term perspective might be gained on what lies ahead (assuming these similar relations continue), as major indexes begin tracing their initial wave lower in a larger decline targeting levels last seen in the 1980s...


Observe the S&P 500's initial wave lower following completion of its counter-trend rally from March - May 2008. Note how the S&P 500's rate of descent from May - July 2008 was relatively less dramatic than was the case prior to March '08 bottom.

If relative similarities considered here were to carry forward, then the presently anticipated, initial trip back down to March '09 low (and quite possibly a bit beyond) might be an affair lasting the better part of the next twelve months. Seeing there was no great rush to retest March '08 low following completion in May '08 of the counter-trend rally off that low, retest of March '09 low might be similarly restrained, relatively speaking.

In other words, no matter how bad — vulnerable — things might in fact be throughout the global financial system, near-term damage inflicted on stocks could be relatively contained during the presently unfolding (still in the very early stages), initial resumption of the next leg lower in an Elliott corrective wave that began in October 2007.

Shortening this view to the here and now, the completion of five waves down from last month's top awaits. In the process the S&P 500 should make a decisive break below its 200-day moving average.

Judging by today's trading (and failure to sustain the early bid) the present thought is the fourth wave of five waves down from last month's top completed last Thursday. So, the fifth wave down might be unfolding right now, with the worst of its decline possibly occurring before the end of the week.

Fast Money
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