Only a Few Days Calm Before the Storm ~ The Risk Averse Alert

Tuesday, September 25, 2012

Only a Few Days Calm Before the Storm

Although it might be too early to insist today's fairly decided turn down confirms a sharp move lower likely has commenced, the fact of the matter is this could be the case. There's precedent, too, supporting this possibility...

It has been a couple years since the market has turned down on a dime. Rather, negative technical divergences accompanying index peaks typically have preceded any decline of substantial magnitude over the past 2+ years. Looking back further, though, there's April 2010 peak standing out as a beacon.

Relative strength (top panel) confirmed the market's move higher off early February 2010 bottom every step of the way right up to April 2010 peak. Ditto momentum (bottom panel). All this notwithstanding, there were no negative divergences registered per these two technical measures prior to the lug nuts falling off early May 2010. Indeed, per momentum we find a similar situation now versus then. Likewise, relative strength's sharp turn away from peak.

Chances are, unless Europe implodes immediately (this being a possibility, as I believe it is in any case about to—too much silence from Team Fraud's captive media in the face of historic social upheaval only suggests oligarchs, soon-to-be wiped out by an unprecedented hyperinflationary blowout, are having a "Depends" moment), it otherwise seems likely every humanly possible effort to milk this moment before the feces hits the fan at least will bring a retest of the peak set earlier this month, much like occurred during the latter half of April 2010. So, look forward to a few days of calm before the storm.

Fast Money
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