Possibilities Relatively Wide Open ~ The Risk Averse Alert

Monday, October 01, 2012

Possibilities Relatively Wide Open

If we stay with possibility a rising wedge is unfolding to form wave (c) of B to complete a 5-3-5 "zig-zag" up from March '09 bottom, it might be the case this "special" Elliott wave form still is fairly early in its development. To wit, since mid-March peak the rising wedge's 2nd wave still might be forming...

The fluctuations of both RSI (top panel) and MACD (bottom) raise the possibility indicated above suggesting a 5-3-5 "zig-zag" up from early June completed mid-September. This follows a 3-3-5 "flat" down from mid-March peak, thus satisfying the Elliott Wave Principle's "alternation guideline."

Now, one thing this view also does is keep into the realm of possibility prospect that, wave (b) of B still is in the process of developing, taking the form of a complex a-b-c-x-a-b-c unfolding since mid-February 2011 peak. Were this possibility to bear out in fact, then there is a good chance that, upcoming will be a challenge of early-October 2011 bottom. We will just have to wait and see what develops. Fading momentum over the past year certainly raises the possibility, along with the market's weakening underlying state as revealed by measures derived from advance-decline data over the interim (take the McClellan Summation Index, for example). There's also the current state of the CBOE Put/Call Ratio and the Volatility Index supporting the likelihood that, the market is vulnerable to suffering a period of weakness at present.

Not to forget September's surge of NYSE-listed issues simultaneously hitting new 52-week highs, nor recent observations suggesting mid-September's market peak is likely to be exceeded while both RSI and MACD negatively diverge, much as is typical at tops. Should a serious bout of selling develop here, the technical state of the market on these accounts would remain supportive of the possibility a further advance to new, post-March '09 bottom highs remains in store once the prospective, upcoming decline has completed.

Fast Money
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