Buon Voyage, Laz ~ The Risk Averse Alert

Tuesday, April 05, 2011

Buon Voyage, Laz

Dateline: August 16, 1982 ... NOT!

Had to clear that up, Laz. Empiricism absent context is a dangerous trap. Besides, didn't you hear? The era of smoke and mirrors is over! (What's a lap dog to do?)

Alright, first amendment workout over. Let's get technical...


In another exercise using technical measures to substantiate an Elliott wave count consider the NYSE Bullish Percent Index. Formation of two 5-wave structures unfolding since March '09 bottom are of interest here. The first forming wave (a) and the second forming wave (c).

Focus on the relative strength measure of the Bullish Percent Index (top panel). As you can see, it was during formation of the third wave of each 5-wave structure that, relative strength peaked. This, of course, is emblematic of a third wave's dynamism, and so acts to technically confirm it.

Then, during formation of fourth waves, the Bullish Percent Index's relative strength dipped to a level eclipsing its low set during formation of the preceding second wave. This gave evidence to each 5-wave advance's weakening state, thus setting the stage for the fifth and final wave of each respective advance.

Now, wave (c) — itself, being a third wave — saw relative strength during formation of its third wave (i.e. wave 3 of (c)) reach its most positive reading. This effectively further confirms the Elliott wave count off March '09 bottom.

All the more interesting is how relative strength's peak during formation of wave 3 of (c) occurred despite the NYSE Bullish Percent Index falling short of its best level over the duration following March '09 bottom. Here, the notion of a third wave's dynamism might seem a stealthy one. Yet if you think about what underlying circumstance must have existed for technical developments noted here to have registered as they did (specifically, by way of minimal selling pressure amidst a fairly tepid bid; indeed, I would argue a contrived bid, this via the CME), then despite what the Bullish Percent Index, itself, was doing (or in this case failing to do), dynamism was found most pronounced precisely at a moment when it most likely would be (i.e. during formation of a "third wave of a third wave" — wave 3 of (c)).

As for persistent degradation of the NYSE Bullish Percent Index over the past eighteen months, this simply goes to confirm the view that, forming off March '09 bottom is a "corrective wave" within the market's greater decline since October 2007 top.

How soon does this end, then? Honestly, it could come at any minute.

That a clueless complacency abounds amidst a great wealth of technical weakness and an awesome arsenal of financial bombshells just waiting to explode is everything — funny, tragic, mind boggling, maddening — ... everything but bullish. Buon Voyage, Laz...

Fast Money
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