Extending a Downwardly Biased Trading Range ~ The Risk Averse Alert

Wednesday, July 21, 2010

Extending a Downwardly Biased Trading Range

If five waves up from June 29th bottom completed last week (July 15th), then another, alternate Elliott wave count might return the preferred view of developments since late-May in the formation of wave (2) (of five waves down from late-April peak) to more familiar lines not long ago thought likely...


A simple (a)-(b)-(c) corrective wave forming wave (2) of (C), indeed, still might be forming. The complex (a)-(b)-(c)-(x)-(a)-(b)-(c) corrective wave discussed the past couple days remains possible, too, but the present technical state of things suggests a fairly steep turn lower might be in order here. This could even result in June 29th's low being taken out. Were this to occur, the simple wave count presented above certainly would become the correct view.

So, with this being the case, then, could even what's labeled wave (a) of (2) above instead end wave (2)? Yes, this is possible.

No doubt, the evolution of the sideways trade since mid-June more or less is in keeping with what were my expectations. Yet improving relative strength and momentum over the duration — both measures nevertheless still precariously positioned — suggest a further sideways trade (albeit with a downward bias) still might be in order before wave (3) of (C) down develops.

Consider this in the framework of expectations set forth over the past week via the CBOE Put/Call ratio. A further sideways trade as indicated above might pass before a notable increase in call option activity develops as anticipated.

Again, as long as any number of profoundly threatening vulnerabilities to the global financial system remain subdued, then the door remains open for further distribution of shares at present, relatively lofty levels. Thus, the Elliott wave count indicated above possesses both solid technical substantiation, as well as [quiet] fundamental circumstances allowing for continued development of a sideways trading market — buying time — leading ever closer to the moment of collapse.

Fast Money
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