Undue Conviction Among Bottom Fishers ~ The Risk Averse Alert

Tuesday, June 28, 2011

Undue Conviction Among Bottom Fishers

There is ample, underlying technical weakness to suppose Thursday, June 16th did not mark the low to the market's decline from May 1st top. It rather appears another round of selling imminently threatens.

The scope of this risk presently is uncertain. A slow, orderly decline could develop, or a gassing leaving little doubt about May 1st top contrarily might unfold.

Should further selling prove orderly and not terribly deep, then whether May 1st peak will in fact mark top to the market's counter-trend rally off March '09 bottom likely will be put to the test subsequently.

NYSE McClellan

No doubt, there has been some notable improvement in McClellan Oscillator readings since the market's June 16th bottom. Seeing the Oscillator registering higher lows as the market was stabilizing over the past couple weeks might from a static point of view indicate a floor being put under the market.

All the more might this conclusion seem fitting following the market's bounce early last week, taking the Oscillator positive, after which its "0" line was retested following last Thursday's and Friday's weakness. Today's seeming confirmation of increasing underlying strength, such as lifted the NYSE McClellan Oscillator to a new high, post-June 16th bottom, might only further conviction that, a floor is in place. The Summation Index's lift to the positive today might be thought presenting but icing on the cake.

However a more dynamic view contrasts one measure in relation to the other. So, with the NYSE Summation Index having gone into a tailspin following many months of registering increasing underlying weakness, improving Oscillator readings coinciding with lower NYSE peaks since May 1st top rather might reveal undue conviction among bottom fishers bidding the market higher following its further fall (each decline having been confirmed to the negative by the McClellan Oscillator). Twice already since May 1st this has proven the case. And here again another instance, yet this time with the NYSE Summation Index clearly reeling. Hence the market's prospective collapse is a most reasonable fear.


The relative strength measure of the NYSE Bullish Percent Index remains in what has proven a danger zone (below 30) for the market. Since March '09 bottom, this condition's existence consistently has coincided with market weakness.

Per $BPNYA's improving relative strength since the market's June 16th low, it is worth noting similar improvement going into end-of-month, May — a positive turn which then proved a fleeting indication of pending market strength, as June's trading further sunk the NYSE Bullish Percent Index, as well as the measure of its relative strength.

Were the market to continue its decline from May 1st peak the Bullish Percent Index likely will follow. How this will impact $BPNYA's relative strength remains to be seen. Given the depth to which it fell this month, a [positive] divergence reasonably might be anticipated. Thus does possibility of a more orderly decline upcoming gain technical substantiation.

All things considered, what appears immediately in store finds agreement with a point of view Katie Stockton of MKM Partners put forward yesterday after the close in an interview with CNBC's Sue Herera...

Of course, I don't share her more sanguine view toward what likely will follow the coming "shakeout." Yet the factors she cites anticipating near-term weakness seem in agreement with my conclusion that, the market's technical state presently leaves it vulnerable to falling further from its May 1st peak.

Now, if you have been keeping a close eye on insights I dutifully present here following each trading day, and your better sense of the market's near-term direction is well-served, then you might value all the more free access to my intra-day perspective coming soon. Bringing you greater certainty in your daily dealings is my single objective in this new venture.

Depending who you are — how frequently you are trading — timely technical insights from yours truly when the U.S. market is open could elevate your trading prowess and better assure your success.

More tomorrow about this goodness. For now, though, a taste of things to come...

SPX 15-min

RSI weakening prior to the market's turning lower, such as has occurred on several occasions this month (the most recent is highlighted above), has yet to develop over the course of the market's advance since late-Friday (6/24). This anticipated RSI weakening could have begun late this afternoon, though. Likewise, its furthering should coincide with the market remaining levitated well into tomorrow's trading. Were a weak close to follow this, then look out below.

Fast Money
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