Not at all was today's trading a constructive postscript to yesterday's presumed capitulation. Whether June 16th's bottom will hold is considerably in doubt.
Yet despite foreboding technical conditions more or less remaining intact, there are reasons to believe a panic will not immediately transpire. These might explain why the past two days were not as damaging as they might otherwise have been, as some reasonable measure of underlying support apparently remains in place, anticipating the market's reversal higher.
As you can see, both relative strength (top panel) and momentum (bottom) are on the mend and, indeed, turning higher. However, both measures remain on the sell-side of their respective ranges, so by no means is it safe to say the market likely is immune to further selling extending weakness over the past two months. June 16th bottom very well might be taken out before any reversal higher commences.
Now, given the fairly rapid manner in which both waves 1 of (c) (beginning at late-June 2010 bottom) and 3 of (c) (beginning late-August) launched higher, I might have been more cautious yesterday in assuming that, Thursday, June 16th marked the end of wave 4 of (c). Yesterday's slaughter at the open (although still reasonably seen a capitulation), when considered in the context of waves 1 and 3 of (c) previously, appears a less than fitting part of any start of wave 5 of (c) higher.
All weakness aside (including today's to end the week), if one still were to assume June 16th marked the end of wave 4 of (c), the lower channel boundary connecting wave 4 with wave 2 (see green line drawn above) was not violated either yesterday or today. So, continued weakness remains fairly well-contained, indeed, as it has for the past two months and for many months previous.
The fair handful of listed-issues supporting the market for as long as Benito Bernanke has been serving his QE elixir apparently remain dear to those whose sugarplum addiction will not be easily broken.
Supporting this view is Doug Noland who in today's "Red Alert" wonders "where the euro would trade today without the market perception that the Chinese are there to provide a backstop bid for European debt and the currency." He may have no doubt that, "global policymakers will act in ways to try to stabilize the system," as apparently do most sugarplum addicts, too. Yet with contagion spreading across the European continent, are not global policymakers at increasing risk of suffering a fatal vote of no confidence? Might the backstop bid more likely be soon withdrawn, if only because the euro is rapidly being perceived a hopeless cause?
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