A Stock Market Precipice Fit for Fearing ~ The Risk Averse Alert

Friday, September 03, 2010

A Stock Market Precipice Fit for Fearing

So many things helping you see through today's ruse ... bolstering the outlook for an upcoming swoon ...


Today's volume? Mighty light. Vacation driven? No matter. Notably weaker than Wednesday's, so we might suppose today's was the fifth wave to Wednesday's third wave. Being a "c" wave up consisting of five waves is expected, today apparently moves us all the closer to that wave's completion, then.

Today's volume ... also suggests that, the big gap higher at the open strictly was a manufactured affair. Indeed, this appears almost painfully obvious. This, too, makes today's finish a smidge short of this morning's high at 10:00 a.m. appear all the more contrived. Show me the money, rather than complacent shareholders, then I might imagine circumstances were different — more positive than is believed the case right now.

Turning to deteriorating technicals ... check out fading momentum (MACD). Green confirms and red diverges ... and these show momentum in decline despite this week's monster rally.

The "c" wave [up] of an a-b-c correction of five waves down from August 9th appears near its end. Indeed, this anticipated wave up might have completed this morning...

OEX 5-min

RSI's configuration coincident with the above wave count is, of course, atypical. Yet seeing that RSI's ever-improving condition coincided with an Elliott third wave (i.e. wave "c" up) — typically the most dynamic Elliott wave — there is reason to be fearful that, today's advance in fact puts the market at the very precipice.

Today's failure to close above this morning's peak — this occurred across all major indexes — I thought was significant. All came within a fraction of their highs and failed to close above them. As such, it is entirely possible a first and second wave down already have formed.

Of course, the above wave count is just one possibility. There could be a few days more levitating before something of a big drop begins. Still, it appears neither inappropriate, nor too late to wonder about a Labor Day surprise touching things finance somewhere in our highly correlated world of hot money off the Monkey Press.


At a time when we find the market...
  • trading about the same level as early-June
  • trading still below May 6th's flash crash close
  • and trading well below August 9th's high
... and we should see volatility shrink to a post-flash crash low?

Can you spell complacency? I just did...

Fast Money
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