Deterioration Measuring a Countdown to Doom ~ The Risk Averse Alert

Tuesday, January 25, 2011

Deterioration Measuring a Countdown to Doom

The market's persistent levitation inspires two noteworthy observations...
  1. Bullish observers whose posture appears defended by this levitation more frequently promote rationalizations that, on most every count are all too easily refuted:

    Tell the "pebble in an ocean — Fed QE impact" argument to its multiplier effect on central banks across the globe whose impact is being revealed by an accelerating squeeze on margins everywhere.

  2. The probability that, a "rising wedge" is forming off late-June 2010 bottom appears to be increasing with persistence of the market's levitation.

    No doubt, this persistence, itself, fairly is the sole quality representative of underlying character typical of an Elliott "c" wave (which this "rising wedge" is seen forming, completing an a-b-c corrective wave off March '09 bottom). Otherwise, the market's technical backdrop fairly lacks such evidence of improving strength amidst persistent fear as typically sustains an advance. Likewise, the manner in which listed-issues are participating while this "rising wedge" takes form is raising the probability that this particular Elliott wave, indeed, has been unfolding and is nearing its end:


It is the trend of the deterioration of participation during formation of corrective waves within this "rising wedge" that is of interest tonight. The wave count assigned to this presumed "rising wedge" is substantiated by this.

Already documented is technical deterioration (how ever modest) during formation of wave 4 relative to wave 2. This is typical technical behavior coinciding with a five-wave advance.

Note, too, though, how deterioration of participation during formation of the corrective, connecting waves within waves 1 and 3 has been evidenced in a manner likewise revealing growing, underlying weakness.

In light of this we probably can expect the corrective, connecting wave within wave 5 to continue this trend. Thus, the market's final act of levitation might first await a negative day resulting in an NYSE advance-decline differential falling within the range of the two red lines drawn above. That day could arrive as soon as tomorrow.

Fast Money
* * * * *

© The Risk Averse Alert — Advocating a patient, disciplined approach to stock market investing. Overriding objective is limiting financial risk. Minimizing investment capital loss is a priority.

Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.

Nothing is set in stone. Nor is the stock market's path of least resistance always known. More often than not, there are no stock index option positions recommended.

There's an easy way to boost your investment discipline...

Get Real-Time Trade Notification!