Serving Humble Pie ~ The Risk Averse Alert

Friday, April 29, 2011

Serving Humble Pie

If past is prologue, then, truth be told, a heaping helping of humble pie could be served up to this giant bear, if, as the final leg of the market's counter-trend rally off March '09 low unfolds, the trend of developments over the past year persists...


First, both relative strength (top panel) and momentum (bottom) confirm the market's lift above its early-April peak. So, given that both measures already have registered prolonged bouts of levitation over the past six months — moving more or less sideways while the market lifted higher — (this, too, extending a long-enduring trend since March '09 bottom finding momentum persistently weakening), prospect is raised that, the upper end of the channel containing five waves up from late-June 2010 bottom could be reached straight ahead.

It seems this prospective, extended move higher completing the fifth and final wave of wave (c) of an a-b-c corrective wave up from March '09 bottom might largely be driven by the kind of sucker convinced the end of the Fed's QE Happy Meal will crush U.S. Treasuries (not likely, as a mountain of lesser credits are much closer to the grinder). Treasury's demise rather more likely awaits QE to infinity and beyond (an eventuality likely precipitated by default at the Euro periphery?).

Considering again the recently noted manner of alternation demonstrated between second and fourth waves since March '09 bottom, there seems a good chance more of the same could be upcoming. So, once wave iii of 5 is complete, wave iv likely will have an upward bias. (Of course, this assumes wave ii of 5 is complete and wave iii of 5, indeed, presently is unfolding.)

So, heads up. All told, the dying days of credibility given a hopelessly imbalanced — hopelessly insolvent — trans-Atlantic debt trap nevertheless should continue finding the stock market's further rally accompanied by technical divergences extending the market's poor underlying state of many, many months now.

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