The Emotion Behind An Evaporating Bid ~ The Risk Averse Alert

Monday, March 14, 2011

The Emotion Behind An Evaporating Bid

Some are claiming today's sell-off largely was emotionally driven. Well, judging once again by volume, it does appear one might objectively say the sentiment being displayed rather reflects a growing distrust toward equities...


Thus, we see stocks falling of their own weight. In a climate undoubtedly rife with complacency unwillingness to snap up "bargains" now trading at a discount to prices just a few short weeks ago presents a DEADLY undercurrent.

Yet as this occurs, many voices shout their conviction that, dips should be bought. Never mind a volume trend these past 18 months revealing there's simply little dry powder available. Today's consensus crying "buy the dips," then, only exposes complacency's fullness — wishful thinking — at this late hour in the long absence of an expanding bid most likely ensuring the market's positive progress.

"It takes buying to put stocks up, but they can fall of their own weight." No doubt, stocks are made heavy with fearlessness supposing they can only go higher. Those still holding — talking a game rationalizing this decision — sure look to be in for a rude awakening. Make no mistake, many insiders are among these, as are friends in Washington. Here comes the reviling. John Law once was popular and powerful, too ... and then become neither.

Now, unlike late-November 2010, momentum's decline is accelerating as its measure — MACD (bottom panel) — is near going negative. Thus, again unlike late-November 2010, the market's decline appears poised to accelerate.

But right away? Maybe not. Enduring complacency amidst an evaporating bid notwithstanding, there's likely a crumb or two remaining in that bag of tricks emptied following 2008's implosion of securities-based finance. So, still in store might be a lift back up to the area where support was turned into resistance (green line above) last Thursday (3.10.2011).

NYSE 5-min

Only a slight change to the Elliott Wave count presented on Friday.

Relative strength's behavior during today's turn higher displays more balance than accompanied Friday's reversal. This improved, underlying condition better supports an outlook projecting five waves up from today's bottom forming wave c of 2.

On this count, too, note peak RSI during formation of wave c of a of 2 (at the open on Thursday, March 3rd). Peak RSI during formation of wave c of 2 likely will exceed this, being a like, related Elliott wave one degree higher.

NYSE 1-min

Supporting the view that, today's turn off bottom was qualitatively better than Friday's is relative strength at 1-minute intervals ... closing today on the buy-side of its range (above 50), as opposed to Friday's close below it (thus setting the stage for today's setback at the open).

Fast Money
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