The Verdict on Patrick Henry Paraphrased ~ The Risk Averse Alert

Friday, March 11, 2011

The Verdict on Patrick Henry Paraphrased

Judging by the market's current technical state, death awaits our paraphrased Patrick Henry playing his best Mr. Market...


First turn your attention to the top panel showing relative strength (RSI) applied to the NYSE Bullish Percent Index. Those several prior periods in which RSI registered below 30 are of interest.

As you will see, these coincided with instances during which considerable selling pressure was roiling the market...


And so, wonder is raised about how far might the market decline in this present instance finding the NYSE Bullish Percent Index similarly configured as those prior periods when stocks had come under considerable selling pressure.

Obviously, there is no way to say with any precision. Yet with an Elliott Wave perspective suggesting this could be a decisive moment at which a 25-40% decline from February 18th top might be in store, we find added technical substantiation supporting this probability.

First, consider momentum of the NYSE Bullish Percent Index (first chart, bottom panel). I have marked with red dots the depths to which $BPNYA momentum reached when its relative strength was below 30. As you can see, plenty of downside momentum in the NYSE Bullish Percent Index could develop over days ahead.

Now, consider the current configuration of that broader view of the NYSE Advance-Decline differential presented here a couple times over recent months. Contrasting this measure's 10-day and 200-day moving averages offers some relative sense of participation among all NYSE-listed issues underlying the market's movement over a period of time...


Once again are those prior periods of interest over the past three years highlighted above. As you can see, the NYSE Advance-Decline differential's 10-day moving average has much prospective downside yet to fill.

Indeed, given that presently thought unfolding is a prospective 25-40% decline forming wave (1) of C (of five waves down, targeting levels last seen in the 1987-1994 period), I rather suspect the NYSE Advance-Decline differential's 10-day moving average will take out its March '09 low. This projected eventuality likewise appears fitting the 10-day moving average's [declining] trend seen at each highlighted, prior period of interest following March '09 bottom.

So, there is a very good technical case for anticipating a strong decline straight ahead.


Now, with volume suggesting there is no hurry yet to bail out ... and many months preceding more or less demonstrating the same ... there appears enough reason at least to suspect that, a move back up to that line of support over the past three months — turned resistance with yesterday's break — might develop before the lid restraining selling gives out and sends the market straight over the edge.

NYSE 5-min

Relative strength helps make a case projecting that, from today's low at the open (marking the end of wave b of 2) three waves up have formed, bringing wave c of 2 some way toward completion. Just how this wave might further develop remains to be seen. Its fourth wave should sink RSI below the measure's low at about 10:15 a.m. today, when the second wave of five waves forming wave c of 2 bottomed. Its fifth wave should see RSI fall short of today's best. This manner of RSI behavior would be typical of five advancing waves.

So, with technical evidence supporting the likelihood that, a strong turn lower in the market is imminent, mere hours might be all that remain in the life of fantasy whose perpetuation largely is responsible for the terrible mess in which capitalism presently finds itself, still captive to wildcat finance anchored atop a woefully neglected physical economy. Those who have been claiming all along that, nothing changed following 2008's financial crisis — nothing pressing upon that moment's vulnerability was addressed in a manner likely to prevent another, larger crisis from reoccurring — well, these folks appear very near receiving their vindication.

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