A View Toward Approaching Collapse ~ The Risk Averse Alert

Monday, July 12, 2010

A View Toward Approaching Collapse

Consider the following variation on Friday's view...

OEX 5-min

Rather than the lift off June 29th bottom forming the first of five waves up marking wave (c) of (2), it's possible wave 3 of (c) of (2) presently is forming instead. Although in the latter stages of its formation, the dynamism one would expect in a "third wave of a third waves" (i.e. wave 3 of (c)) is revealed by today's continued drift higher.

This is about the only manner in which a dynamic character is being displayed. Other indications clearly suggest distribution is besetting the greater majority of listed issues...


During formation of wave (c) of (2) thus far, advance-decline differentials registered on each exchange have yet to best that registered during formation of wave (a) of (2).

Likewise, today's relatively flat trade on both exchanges saw a decidedly greater number of listed issues declining on the day.

Now, I could be wrong about the alternate Elliott wave count suggested above. Friday's view might prove more accurate. In this case advance-decline differentials still might register something more "c" wave-like and exceed wave (a) of (2) readings.

Or, truth might be the market is flat on its back right now and can only put together a more contrived rally in continuing wave (c) of (2) — a rally largely absent fearful sellers than dominated by aggressive buyers (in other words, same old same old) — in which case advance-decline differentials could fail to best even last week's readings, and thereby provide evidence substantiating the probability wave (3) down from late-April top is on the verge of developing.


All indications continue suggesting the market's rally off June 29th bottom is decidedly contrived and failing to draw in such wider interest as would positively affect the Bullish Percent Index. That this is the case so far given how strongly major indexes have risen is suspicious to say the least. Were this to persist, then, again, we would have more evidence substantiating the probability the market's collapse is pending.


Go figure. The "What? Me? Worry?" crowd finds comfort in the fact very little is needed to push the market higher — very little volume and very little participation (relatively speaking that is).

Maybe the fact fearful selling is exceptionally subdued should rightly affect the VIX as such? Or is it possible the VIX fails to take into account any notion of misplaced complacency?

VIX behavior in relation to its 200-day moving average back in 2007-2008 when the market was just starting to turn over might prove instructive, and particularly foreboding if the VIX soon breaks below its 200-day moving average. As you can see, this similarly occurred in the March - May 2008 period just prior to that year's second half collapse. A repeat performance in the midst of continued internal weakness (as noted above) would be a fitting disparity serving to increase the probability of the market's approaching collapse.

Given technical evidence presented so far in the formation of wave (c) of (2), mistaken appears Friday's suggestion that some of the best technical readings of 2010 might be in store. Instead, the objective for wave (c) of (2) (or its near vicinity) put forward on Friday might remain intact, and yet be accompanied by the sort of weakening, underlying technical conditions as one might expect prior to collapse.

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!