Contrasts in a Top, 2007 ~ The Risk Averse Alert

Wednesday, July 13, 2011

Contrasts in a Top, 2007

Among major indexes possibly marking May 1st, 2001 as peak to its counter-trend rally off March '09 bottom is the NYSE Composite Index...


Although existing here is the same, generally positive, technical state as was described yesterday via the S&P 500, this broad market measure continues to significantly lag the industry benchmark S&P 500, as well as NASDAQ's Composite Index. Should this continue over the course of the market's anticipated, further advance, remaining on the radar would be a prospective head-and-shoulders top, as detailed recently. (And what I have labeled wave ii of five waves down from May 1st peak could prove but wave a of ii ... just a heads up.)

Now, this NYSE lag is nothing new. This has been the way of it since March '09 bottom. On the surface all quite typical in an advancing market. Under the covers, though, a horror show all the way up, unmasking a deception and exposing a bull trap. There, lagging NYSE finds its leadership just crushing NASDAQ (whose thin leadership warns that, hope and prayer levitating the majority there could cost plenty when panic comes to town).

NYA 2007
$COMPQ 2007

NASDAQ's leadership off July 2008 bottom previously has been characterized an inappropriate demonstration of bullishness among weak hands. This same character since March '09 bottom likewise is seen prevailing in NASDAQ's leadership higher again, even to now.

Now, add to this the above "contrasts in a top, 2007." Duly note each index's position relative to prior lows at the start of the market's final surge higher (August). This same condition — where NYSE exceeded a prior, significant low, while NASDAQ remained above that same low — likewise set up the market's counter-trend rally in August '08, just prior to Lehman's collapse. Once again, too, this very same foreboding condition — irrational exuberance, technically substantiated — set up the market's counter-trend rally off March '09 bottom. (See "Sucker Heaven")

Finally, something to ponder in the context of the Elliott Wave Principle. Should the NYSE fail to exceed its May 1st peak — nothing under the covers suggests this is unlikely — increased weakness revealed at the U.S. stock market's core (i.e. the NYSE) would be fitting setup for a wicked third wave down upcoming, whose rapid unfolding, indeed, 2008 forewarns, and a flash crash since but raises odds the real earthquake (not a precursor) could be in store...

Fast Money
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