Technical Confirmation of Impending Weakness ~ The Risk Averse Alert

Friday, October 12, 2012

Technical Confirmation of Impending Weakness

Seeing the CBOE Put/Call Ratio picking up positive momentum—a market negative—while the Volatility Index remains slow to register any pickup in fear—a sign of complacency—there's good reason, really, to fear more selling ahead...


I question whether wave b of a of 4 might extend out to sometime later this month, thus allowing momentum time to turn negative before wave c of a of 4 lower unfolds in a decline whose end could/should sink momentum below its early-June trough, this furthering a display of increasing exhaustion off early-October 2011 bottom and confirming a rising wedge is forming wave (c) to complete a 5-3-5 "zig-zag" up from March 2009.

Subtle was today's S&P 500 break below its rising trend line from early-June bottom. This week's negative momentum trend breakdown, too, (bottom panel) likewise suggests trouble ahead. Closing the week with negative relative strength (top panel) is but another new, foreboding development. Yet none of it suggests certain imminent danger. Rather, heightened only is risk that weakness could develop sometime over the coming period, which event, too, would be fitting the Elliott wave-based perspective I prefer here, the likes suggesting a rising wedge off early-October 2011 bottom is some several months more forming before completing the market's counter-trend rally since March 2009.

The NYSE's internal state revealed by the 10-day moving average of daily NYSE advances-declines (blue line) provides wave count confirmation in a manner like index relative strength (RSI) and momentum (MACD). Alternation in formation of wave 1 of (c) versus wave 3 of (c) appears here, too. Ditto increasing exhaustion.

And now the NYSE's internal state is weakening off a decisive peak (any time the 10-day moving average of daily NYSE advances-declines rose above 800 over the past few years a break in the market followed soon after). Nevertheless, its internal state also is fairly "in balance" and improving notwithstanding this week's market softness. So, again, although a deeper pullback seems likely in store, there are reasons to believe this might be delayed some days, while the middle wave of an a-b-c down from September's peak further forms.

Fast Money
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