Late-May 2011 And Now ~ The Risk Averse Alert

Tuesday, April 17, 2012

Late-May 2011 And Now

One technical measure presently indicating the market is vulnerable finds similarity to its same condition a year ago when the market was topping. As such, this measure's current state supports an outlook projecting the market's continued levitation over the next several weeks, bringing to completion an Elliott 5-wave advance developing since late-November 2011.


As I have detailed here before, since March '09 bottom whenever the NYSE Bullish Percent Index's relative strength (top panel) has dropped below 30 the market has come under pressure. Interestingly enough, this same condition had come to be in the latter half of May 2011 to usher in a corrective wave fitting the moment, a decline which bottomed mid-June.


With the S&P 500's momentum (bottom panel) crossing below its 0-line another parallel to late-May 2011 becomes apparent. Today's similar condition, then, both momentum-wise and per the NYSE Bullish Percent Index could put the S&P 500 near mid-stream in forming a 4th wave correction of its preceding 3rd wave advance. Thus the S&P 500's projected wave 4 progression over the next couple weeks, as indicated above.

Given technical weakness building over the entire course of 2012's advance — per the S&P 500, its momentum divergence relative to that registered during October's surge is significant — it is possible wave 4's completion could extend in time across a broadening range, this while the S&P 500's momentum fade deepens rather considerably. In fact contrasted to early-July 2011 momentum during wave 5's upcoming formation could prove more challenged to advance to the positive side of its range. Thus raised would be prospect of the market's subsequent collapse once wave 5 completes, given what followed early-July 2011 peak under conditions that were not quite as weak as today.

Fast Money
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