Awaiting Panic ~ The Risk Averse Alert

Tuesday, May 22, 2012

Awaiting Panic

The building crisis in the trans-Atlantic banking system affecting a widening swath of debt obligations (with Japan joining the downgrade brigade today), has yet to precipitate any measure of panicked stampede, either into the barbaric relic or out of equities. Recent history suggests, however, this turn of affairs likely will accompany any new debt crisis that, right now by "official" accounts is just waiting in the wings.

$GOLD weekly

We'll really be cooking with gas once $GOLD:$SPX (bottom panel) votes "no confidence" in a manner similar to the above circled periods occurring over the past two years. Contrasting the market's setback this month with more dire possibilities these prior periods raise, the buildup for a challenge of March '09 lows appears on course to prospectively coincide with a panic into gold the likes of which has yet to even begin to materialize.

$INDU weekly

Another curiosity is seen in the relative performance of the Dow Jones Industrials Average versus the S&P 500. Subsequent to March '09 bottom whenever the Dow was relatively outperforming the S&P 500, the market was at greater risk of coming under pressure. All the more curious in this regard is $INDU:$SPX upside crossover of its 20-day EMA (exponential moving average) and/or subsequent reaction back down to it. These events have coincidentally preceded difficult moments these past couple years. And here we are again.

SPX 5-min

Now the question is whether five waves up from Friday's bottom form wave c of 2 (completing a 3-3-5 "running correction") and bring into the cross hairs wave 3 down from May 1st peak, or whether these five waves up from Friday complete but the first of five larger waves higher yet to form wave c, with the second of these five waves developing over much of today's trading.

Favoring the former possibility and running against the latter is momentum on daily index charts, whose position more or less remains in free fall and shows no sign yet of a turnaround. Add this to relevant $VIX and $BPNYA measures that remain as precariously poised today as has been the case over the past couple weeks. As such, expressed risk going into this week's trading has not been technically diminished in the least. As strongly as the market bounced yesterday and early today, even more strongly could it turn lower and end the week on a sour note.

Fast Money
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