Garbage In, Garbage Out ~ The Risk Averse Alert

Friday, November 02, 2012

Garbage In, Garbage Out

Yesterday's advance might have been a manifestation of "saving the day" in a fashion like was noted here on Monday. The NYSE advance-decline differential registered its best since the market's September peak.

Yet supposing the market's decline from its September peak is likely to see underlying technical weakness surpassing that displayed early April we find only a mixed bag of measures confirming this outlook. One measure yet to do so is in fact the NYSE advance-decline differential. There are others. Among these is the Volatility Index. So, it seems likely there will be more selling in store before this present, initial turn away from September peak is completed.


Further supposing the worst of this present setback in fact might manifest during its initial phase rather than its final phase, such as occurred in the April-May period, a sense of weakness still to develop is seen via RSI (top panel) and MACD (bottom). Seeing the S&P 500 currently constrained by its 50-day moving average in a manner considerably more decided than was the case in April, the prospect of weakness continuing is bolstered. Looking ahead, the S&P 500's 200-day moving average probably will prove a good bit less supportive than was the case late-May. In keeping with an outlook anticipating increasing relative weakness registering during the market's present setback versus that during the April-May period major indexes like the S&P 500 are likely to trade below their respective 200-day moving averages for a longer duration than was the case earlier this year.

This outlook, of course, assumes an Elliott "rising wedge" is unfolding off early-October 2011 bottom. However this assumption could prove mistaken if respective index 200-day moving averages are taken out with a vengeance during the upcoming period. Lord knows utter complacency displayed by a host of technical measures at present makes this possibility something more than just slight. Yet should a rising wedge-wrecking outcome be on the horizon, the matter of whether something extraordinarily nasty is afoot will move front and center, and so encourage further assessment of dire possibilities upon subsequent reaction back up to 200-day moving averages, as is likely in the ongoing effort to save the sinking ship of stinking garbage called equities. Obviously, we will cross this bridge if in fact it should be imminently approached.

Word on the Street
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© The Risk Averse Alert — Advocating a patient, disciplined approach to stock market investing. Overriding objective is limiting financial risk. Minimizing investment capital loss is a priority.

Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.

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