Violent Wonders All the More ~ The Risk Averse Alert

Wednesday, August 11, 2010

Violent Wonders All the More

(Heads up: received the following today from TradeMONSTER, announcing a free webinar ...
Live in the Markets with Guy Adami and Dan Sheridan ... so, register if you are interested.)

If you missed the opening of today's Mad Money with Jim Cramer and you could use a laugh, check it out. Hilarious!

(As for Cramer's typical song and dance after the show's first ten seconds, the "movie" he mentions is the very same film running from May - September 2008 in which he starred as Chief "Bull Run" of the Shempaho Tribe.)

Okay, so after countless months during which the Federal Reserve essentially has been repeating the same message as yesterday's — namely, the credit system is a dysfunctional basket case — at last, stocks react as though financial collapse, indeed, might be imminent.

But is it?

Did Santander crater (a la Bear Stearns) and suddenly threaten to take down Great Britain? No.

Did Greece default? Spain? Portugal? Ireland? Italy? No, no, no, no and no.

Did Germany leave the Euro, or today strongly threaten to do so? No.

Did California declare bankruptcy? Illinois? New York? No.

My point is that, inasmuch as the market's behavior since March '09 bottom largely has been "technically driven," so too might be thought today's dive. Right now, much depends on what follow-through develops over the next couple days.


Now, that's what I call "falling of their own weight." Curiously enough, though, volume came in lighter than a month ago during a decline of similar magnitude. This is seen a double-edge sword.

On one hand, volume today gave no sign of any increased urgency to get out of stocks. The same could not be said at April top.

On the other hand, volume today gave no sign of any increased fear about being long stocks. The greater preponderance of complacent suckers — whether these be blinded by size or hanging on for dear life — at the end of the day apparently were about as long as they were yesterday.

Now, the break below what appears a rising wedge forming off June 29th bottom no doubt was behind the message I received today from Elliott Wave International announcing:
Bob Prechter just posted an Elliott Wave Theorist Special Interim Bulletin yesterday evening—subscribe risk-free to read it now, and understand exactly where the stock market is headed next.

However, I remain inclined toward the view put forward on Friday stating, "a drift higher mimicking that from September 2009 to April 2010 seems a distinct possibility here."

In keeping with this, as well as recent comments noting technical similarities the market's rise off June 29th bottom shares with the March - April 2010 period, this week's break of RSI's uptrend could be seen putting things in a similar position as during the latter half of March, just prior to the market's final move higher into April top.

NYSE McClellan

The NYSE's McClellan Oscillator concurs with this view.

Thus, the market's further levitation over days ahead (possibly extending into September) could lead both the CBOE Put/Call Ratio and the NYSE Bullish Percent Index to reach such anticipated states (see Momentary Strength v. Staying Power) as has been thought likely to precede the market's expected throttling (wave (c) of B of (B)) prior to election day.

No doubt, though, surprises like today's — out of the blue a royal thumping — makes one wonder all the more whether a violent misdirection might be in store...

Fast Money
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