Pigs Fly When Fearless Suckers Rule the Day ~ The Risk Averse Alert

Monday, August 02, 2010

Pigs Fly When Fearless Suckers Rule the Day

From the shore of beautiful Lake Ontario in upstate New York ... it's the other Debbie Downer (the more famous me is on vacation this week) coming to you one day nearer a dizzying tailspin whose likelihood but increased with today's lift higher.

Let's look at the situation from another, more comprehensive perspective. You'll see why this bear is licking his chops...


Yes sir. It's D-Day +1 ... distribution done. And fearless souls — some holding for dear life, as well as being among firms "too big to fail" — find less reason still to express doubt the market will rise further, and so hold rather than sell. Volume on both counts demonstrates this.

Now awaits final feeding of still hungry pigs. Volume accompanying the run-up to April peak could prove instructive here ... with a pickup indicating the pool of suckers on whose backs further gains might be made simply not deep enough to justify the cost ... so, out of need for capital but one choice will remain ... and the plug will be pulled.

Relative strength's increase (RSI) coinciding with the Elliott wave count applied above to the NYSE Composite Index provides yet further evidence of fearlessness among long equity holders. Most fittingly RSI's increase substantiates this wave count. In "like-from-like" fashion do we see relative strength extending during fifth waves of third waves. First, was during the fifth wave of wave iii in mid-July, and now during the fifth wave of wave c.

This condition is an echo of what was evidenced during wave 5 of (c) of A from early-February through mid-April.

NYSE McClellan

Still more evidence of an increase in fearlessness is offered by the NYSE McClellan Oscillator. That's how everything following May's throttling reads. First signs of this are seen during formation of wave a of (b) of B from the market's May bottom to June peak ... and yet again further (as is most fitting) during the presently unfolding wave c of (b) of B off June 29th bottom.

Now, today we see first signs of weakness ... with a diverging McClellan Oscillator shedding light on this condition ... right on schedule.

You simply could not ask for greater clarity about the technical state of things.


Okay, so maybe today's NYSE McClellan Oscillator divergence did not provide a first sign of underlying weakness. Indeed, judging by the diminishing trend of advancing issues on the NYSE participating during advancing periods since late-May bottom, one can conclude underlying weakness consistently has been building over the interim, and this without fail.


Mid-July, the NYSE Composite was challenging its best levels since late-May bottom ... yet the percentage of listed issues with bullish point-and-figure charts was notably muted (marked in red). Only during the market's advance since July 20th — forming wave v of c of (b) — has this measure broadened.

How fitting is this? In a word: most.

Indeed, mid-July it was not at all clear how weakness the NYSE (and NASDAQ) Bullish Percent Index was demonstrating might resolve. Now we have the answer. Coming during the market's final lift higher preceding an anticipated throttling, and with the bulk of distribution done, we see stark demonstration showing weak hands once again increasing their exposure at the worst possible moment.

Fast Money
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