Top of the Mourning! ~ The Risk Averse Alert

Tuesday, March 22, 2011

Top of the Mourning!

Did you notice via yesterday's NYSE Bullish Percent Index that, this measure of the market's technical state has markedly deteriorated versus November 2010, this while the NYSE Composite trades higher than it did then? Thus, long-noted underlying weakness accompanying the market's advance since late-June 2010 finds continued technical confirmation substantiating probability that, a "rising wedge" forming off that bottom ended on February 18, 2011 and is in the process of being rapidly retraced (as the Elliott Wave Principle indicates is typical).

Indeed, the market's bounce off last week's low notwithstanding, there is plenty of reason to stick with this view.


Already since 2/18 top there have been two momentum bounces (see bottom panel), yet the market's decline subsequently continued. With momentum now negative, odds are the present bounce likewise will fail to reverse the market's decline, particularly given myriad indications of growing underlying technical weakness revealed over recent months (contrary to what was the case late-August 2010).

Now, returning to present similarities to April 2010 top, we see via momentum as well as relative strength (top panel) that, a more "balanced" deterioration in both measures has been evidenced in the battle between buyers and sellers thus far since 2/18 top. Intuitively, this might be thought an appropriate state of underlying conditions during the initial phase of the market's reversal lower. Next on the agenda, then, appears an acceleration of technical deterioration coinciding with a market dominated by sellers, much as occurred in early-May 2010.

Seen in this light you get a sense of how the decline thought upcoming offers to bring a good deal more pain than was delivered last May, too. Both a technical setup indicating considerably more weakness now versus then, as well as the greater depths to which the market's initial turn lower have carried major indexes off 2/18 top evidence a more negative backdrop supportive of the likelihood that, the U.S. market is on the verge of collapsing to a similar degree as did Japan's market last week.

Fast Money
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