Defying a Strong Bounce ~ The Risk Averse Alert

Thursday, May 24, 2012

Defying a Strong Bounce

There is a consensus loudly anticipating a strong bounce here, yet extraordinarily weak technical underpinnings beg to differ...

NYSE McClellan

The NYSE McClellan Summation Index, now negative — an extraordinary state these past few years — likewise is badly diverging from its better position at the market's December 2011 bottom. Combined, these spell big trouble. And with the NYSE McClellan Oscillator — itself confirming the market's every new low since March 2012 — now approaching a state proven several times recently to coincide with the market's reversal and further retreat, this does not appear the right moment to grab at falling knives.

Index momentum remains decidedly negative. This measure is not yet showing any sign of a positive divergence, or a turn higher, like occurred during the latter half of June 2011. It's getting close, but the underlying technical condition revealed by the NYSE McClellan series suggests there will be no cigar. Further disappointment awaits. The week still very well could go out on a sour note. A still fading NYSE Bullish Percent Index (itself also having fallen below its 200-day moving average) likewise suggests momentum might not be imminently reversed higher. So, no shortage of technical evidence is presently defying those who, right now, are expecting a strong bounce.

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