An Animal Spirits-less Tempering ~ The Risk Averse Alert

Monday, October 08, 2012

An Animal Spirits-less Tempering

Broad market indexes moderate Friday's S&P 500-driven, prospective outlook specifically anticipating an imminent advance extending wave (c) of B higher (off a presumed, October 2011 bottom). These measures rather raise prospect that, wave (b) of B still is forming, meaning the market might be subject to a fitting bout of weakness before any decisive thrust higher develops to form wave (c) of B to complete a 5-3-5 "zig-zag" up from March '09 bottom.


The view above already has been discussed. Increasing momentum weakness over the entire course of this year's trading while the NYSE Composite index jerked higher (yet to exceed its May 1, 2011 peak, though) presents circumstance suggesting all the ducks might not yet be in a row allowing the broad market to shoot higher from here. Then again, September's surprise, showing more NYSE-listed issues reaching 52-week highs than any time since March '09 bottom, seriously tempers any conclusion supposing "disunity" still might be impacting confidence necessary to drive the broad market higher. The NYSE's lag rather might sooner become old news on account of September's sudden display of unity behind the NYSE's leading issues. Here, it's possible, then, the NYSE Composite completed wave (b) of B upon reaching its early June 2012 bottom, and wave (c) of B higher has been underway since.

Shortcomings exposed on NASDAQ more decidedly raise concern a pullback of some significance could be in store before any prospective, substantial lift higher further develops (indeed, supposing such a lift higher were the most likely path forward, this completing a zig-zag up from March '09 bottom). Negative RSI and MACD divergences at NASDAQ's September peak (versus higher Q1 2012 readings at lower NASDAQ highs) raise the likelihood that, weakness begets more weakness and the still very technically challenged NASDAQ pulls back with a vengeance. That said, however, momentum off early June 2012 bottom still remaining positively disposed relegates even this conclusion premature (see bottom panel).

As I said, and this is no understatement, NASDAQ's technical underpinnings continue exposing an animal spirits graveyard. Nothing "under the covers" reveals this year's levitation is an increasingly inclusive affair. In fact quite the contrary, much as has long been true, and as such remains a negative underlying NASDAQ trend. So, then, any upcoming bout of weakness rather finds NASDAQ conditions appearing most conducive to such probability, broadly speaking.

Today's failure to reverse Friday's fall critically finds absent any inclination to mount a bid aiming to continue the market's advance over the past couple months. This disposition should become prevalent were circumstance leading to a substantial bout of selling to develop over coming days and weeks.

Fast Money
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