Heaven Turned Hell in Hyperinflationary Breakdown ~ The Risk Averse Alert

Friday, July 08, 2011

Heaven Turned Hell in Hyperinflationary Breakdown

Call this a George H.W. Bush moment...

READ MY LIPS: in hyperinflationary breakdown illegitimate debt sustained at all costs but dooms physical capacity made "excess" one way or another to be shed only more rapidly. Thus is the United States' disastrous employment situation explained.

This dynamic will continue, too — indeed, accelerate — should the policy response to imploding euro-zone periphery liabilities not qualitatively shift toward insistence on Glass-Steagall reorganization. All that's left to wonder now is whether in removing impediments to this profoundly necessary reform Congress need more evidence that, the U.S. Constitution's 25th amendment is begging exercise. A patent law tweak? Come on.


Necessity might require returning to Elliott wave perspective supposing five waves up from late-June 2010 bottom remain in progress — these forming wave (c) of an a-b-c corrective wave up from March '09. Rather than eliminating this possibility, the alternate view detailed here recently — supposing May 1st marked the end of wave (c) higher — was taking into account certain technical developments rather supporting its likelihood, which continue doing so even today.

However, this week's challenge to that alternate point of view — this simply in the market's holding up, and not giving back some significant portion of last week's outsized gain — requires thoughtful acknowledgment. So, although in some cases May 1st top still might mark end of wave (c), equal due is deserving those most likely alternative views among finite possibilities (such as the Elliott Wave Principle provides means of isolating). Appropriate this moment, then, is consideration of prospect that, five waves up from late-June 2010 continue forming and have not yet reached their end.

Now, per recent technical developments raising possibility that, May 1st saw wave (c) end, the recent behavior of moving averages of the NYSE Advance-Decline differential were at the root. So, how might the message this measure presents at the moment be fitting the possibility that, wave (c) has not yet completed?

NYSE McClellan

The NYSE McClellan Oscillator is one such moving average of the NYSE Advance-Decline differential whose behavior of late raises possibility that, the market's anticipated collapse to levels last seen in the 1987-1994 period began on May 1st, 2011.

Yet another view we could consider toward the Oscillator's performance of late covers matters of balance among interests in the context of both the immediate and longer-term Elliott wave perspective.

Back in July 2010, during formation of wave v of 1 of (c), the NYSE McClellan Oscillator reached its highest peak seen over the past year. Never during formation of wave 3 of (c) did the Oscillator seriously challenge its July 2010 peak. Now, suddenly, during presumed formation of wave 5 of (c) the Oscillator has given serious challenge to its prior peak.

So, the question is whether over the past year the NYSE McClellan Oscillator's fifth wave bursts present the character of an imbalanced market poised to be reversed?

This consideration becomes all the more fluid in a context supposing five waves up from late-June 2010 are completing a counter-trend rally whose reversal is anticipated to be devastating. The greater measure of distribution the Oscillator revealed during formation of waves 3 and 4 of (c) — this as the Oscillator successively reached more deeply into the negative at higher NYSE Composite lows and failed confirming the NYSE Composite as it was reaching higher highs — certainly substantiates the outlook of mine supposing that, the market's collapse could be fast approaching. So, volume-related confirmation that, the market's long-interest is waning in its power to further levitate the market — this feat largely being achieved by selling restraint achieved on the back of a CME-driven bid — finds in the NYSE McClellan Oscillator evidence suggesting something threatening, indeed, has been developing over the past year under the covers.

Yet still needing some elaboration is fifth wave character the NYSE McClellan Oscillator first revealed most dramatically near the start of five waves up from late-June 2010, and now as these five waves near their completion. What's behind the Oscillator's fifth wave bursts? Could the common thread simply be a momentary demonstration of extreme selling restraint, which at the time it occurs proves most instrumental in propelling the market higher?

Were there no need to consider the Oscillator's behavior beyond the context of the Elliott wave thought unfolding at any given moment (thus leaving substantiation of related waves in a 5-wave sequence to the Summation Index) — were the Oscillator's absolute values only meaningful in this context — then what present demonstration of extreme selling restraint is revealed (all the more confirmed by pathetic volume accompanying the market's significant lift these past couple weeks) sounds fair warning of a bloodbath to come once selling restraint can no longer be maintained (a condition that, the collapsing trans-Atlantic financial system more or less guarantees, and finite Elliott wave possibilities make an extraordinarily credible prospect).

So, per what lies immediately in store as wave 5 of (c) completes, the extreme degree to which selling restraint presently is being demonstrated suggests that, once the McClellan Oscillator turns negative, severe trouble likely will soon follow.

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Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.

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