Treading on Dangerous Ground ~ The Risk Averse Alert

Tuesday, June 01, 2010

Treading on Dangerous Ground

Up until the final fifteen minutes today, all was proceeding as was thought likely on Friday (i.e. relatively dull trading). Then, going into the close that arbitrary "line in the sand" identified on Friday was crossed ... this despite having held at today's open.

SPX 5-min

Not necessarily believing one should read too much into this, the show of weakness nevertheless is noteworthy. Considering, too, persistently weakening relative strength confirming index lows these past two days, as well as muted volume registering over the past three days ... it appears, first, buying interest is thin, and second, those presently long are holding on for dear life, rather than selling.

Yet whether these technical signs of weakness immediately manifest into a further plunge away from late-April top seems somewhat doubtful given the S&P 500's corrective wave-like form since Friday's peak at the open. In fact, it appears this corrective wave might have begun last Wednesday (May 26th) ... thereby leaving open the possibility that, a larger than originally anticipated a-b-c corrective wave [up] from last Tuesday's bottom is forming (with wave c yet to unfold).

Were this to prove the case, then wave 3 down from late-April top might be nearer to unfolding than was recently thought. Indeed, wave 2 [of five waves down from late-April top] might presently be forming. Contrarily, the view that, wave 3 down might have begun unfolding on May 13th still remains alive.

Having read that, opinion in Europe openly is questioning whether the Euro will make it through the weekend, the threat of spectacular collapse might be the reason why technical weakness of note today is persisting. The market quite evidently is treading on very dangerous ground, indeed.

Fast Money
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