Still a Great Case for Remaining Bearish ~ The Risk Averse Alert

Friday, November 05, 2010

Still a Great Case for Remaining Bearish

Here's a perfectly valid, technically well-substantiated Elliott wave count detailing the market's move up from late-August forming wave c (of an a-b-c corrective wave up from late-June)...


Shown via green lines above, a channel paralleling wave 1 puts the target for wave 5 of c not much higher from here.

Should the upper end of the five wave channel forming wave c instead parallel wave 3, then this target would be raised a bit; wave iii of 3 higher still. All things considered, probably best expect the already grotesque to bring on the gag reflex. Today's technical similarities going into April peak could be extended in a matter fitting this wave c [up] of wave (b) [down], and deliver a "blow off" top.

Aside from this, similarities in the relative behavior of RSI and MACD coinciding with formation of like waves (i.e. second waves, third waves, etc.) lends the above wave count considerable credibility. As such, then, yesterday's view that, a fifth wave is unfolding off late-August bottom gains substantiation.


More fifth wave substantiation here, too. Rather than being in a position similar to point 1 above, as was recently thought possible, it rather appears something similar to point 2 is more fitting.

Here too, I think, potential for a "blow off" top is raised, as the market did not reach its peak until the latter half of April.


A new VIX low coinciding with formation of wave c since late-August also leaves open the door to a blow off top.

Be that as it may, though, the technical setup here continues pointing the way to an unfathomable sinking ahead (much as was true a few weeks ago).

That technical divergences abound supports this view...

$NYAD cumulative

I certainly imagine these divergences could continue. Yet should the latter two measures presented above finally confirm the market's move into new high ground, post-March '09 bottom, then following any upcoming swoon bringing March '09 lows into the cross hairs, a strong lift higher precipitated by what then will be a revealed, increased underlying interest will have been technically "foretold."

Indeed, this is much like one might conclude about the market's present lift off late-June bottom. Increased interest revealed by an expanding NYSE Bullish Percent Index and New High - New Low differential at the market's April peak can be thought backing the present drive higher.

Still, the utter absence of animal spirits necessary to sustain a prolonged advance remains a most conspicuous backdrop...

$NAAD cumulative

NASDAQ's nearly 100% advance off March '09 bottom ... and its 20+% advance of late-August 2010 bottom ... finds underlying backing the likes of which animal spirits are not made of.

This reality should not be lost in the Fed's QE excitement (a thrill tempered at the gas pump and grocery store, of course). NASDAQ's cumulative Advance-Decline line clearly demonstrates a tenuous reality all the more substantiating possibility that, the market's advance since March '09 is a bull trap whose springing is not likely to attract any interest capable of putting in a solid floor.

This is not to say the bull trap's building is complete. Yet a further weakening of animal spirits is all too likely were the market to crater in any manner, let alone challenge its March '09 lows. Subsequently, then, might this bull trap more likely be completed.

Fast Money
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