Devastating Outlook Support ~ The Risk Averse Alert

Tuesday, August 14, 2012

Devastating Outlook Support

Might as well take yesterday's (amended) picture of negatively poised NYSE weekly momentum to the daily chart, where moving average performance supports a simply devastating outlook...


The concentric circles drawn venture a like-from-like perspective per the 50-day moving average's performance — a dip lower followed by recovery to new high ground, only to be taken down yet again (first in May 2010, then again in August 2011). The effect as time has progressed only has become more pronounced, covering ever-greater swaths of ground. Thus, the 200-day moving average being pulled down and yesterday's fading weekly momentum. Taken together, that's enough reason to say, "Houston, we have a problem."

All the more considering last October's huge momentum divergence. Way out of place. Way too panicked. And absolutely no follow-through: D.O.A. Recall the contrast I made via momentum some months ago comparing last year's recovery with that following the May 6, 2010 "flash crash" and its aftermath, citing positive balance between believers and disbelievers in the first instance, and negative imbalance in the more recent. This distinction still holds, and has been confirmed by the NYSE Composite's failure to reach higher highs off its March 2009 bottom subsequent to recovering from last year's early-October low.

Weekly momentum weakening with effect that is confirmed by longer-term moving average performance meets daily momentum likewise weakening in a manner strikingly similar to instances over the past few years preceding notable market setbacks. Add pathetic volume, and the market is well-poised for a steep dive, indeed.

Fast Money
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