Lost Balance Exposes Weight Problem ~ The Risk Averse Alert

Tuesday, November 29, 2011

Lost Balance Exposes Weight Problem

Supporting last night's view that, the present moment appears similar to early-June 2008 is evidence against it being similar to late-August 2010...


Similarly improving relative strength (top panel) and momentum (bottom) are coinciding with a market similarly unfolding, now versus then, but important contextual differences make the current moment precarious. This first is revealed by technical extremes registered in the present instance.

Back in 2010 both the collapse to bottom and subsequent recovery never shook technical underpinnings to a degree upsetting the balance of forces underlying the market's drive higher off March '09 bottom.

Not so presently. Balance has been lost, and lo, the broad market is falling of its own weight — a subtle matter of circumstance amply revealed by the volume of NYSE-listed issues exchanged, both during August's collapse as well as this month.

Of course, this very well complements a market whose every step higher into July 2011 peak consistently saw diminishing interest willing to pay up for a piece of equity risk. Taken together, my thesis that the market is dominated by weak hands remains objectively supported.

$NYAD 10 v 200 DMA

More evidence revealing the present moment significantly different than late-August 2010. In fact, stark underlying weakness is revealed by both the absolute performance of the 10-day moving average of the NYSE Advance-Decline differential relative to the market's fluctuations, as well as the persistent degradation of this measure's 200-day moving average since April 2010. Under the covers the market's state is weakening.

Indeed, the next six months could be the most vicious in history. There simply is no shortage of circumstance — fundamental and technical — pointing in this direction. Present similarity to late-spring 2008 could be pointing the way to a disaster straight ahead.

Fast Money
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