Since the "God save our sinking ship" panic of early-October 2011 there probably have been more upside gaps in the NYSE Composite Index(!) than previously were registered going back all the way to Y2k. Might this possibly argue for a "c" wave (an Elliott 3rd wave) taking the form of a "rising wedge" off October 2011 bottom, as suggested here before? Yeah, no, maybe. The fact of the matter is, though, many of these upside gaps have developed near tops over the interim and have been followed by fairly protracted retracements, so doubt is raised about any Elliott 3rd wave forming here.
This week's "God save our sinking ship" echo, indeed, produced the very same sense about the impetus behind it as was delivered when the market rallied from late-June to early-July 2011. Specifically, something simply is just not right. Have no doubt, an incredibly weak technical backdrop plainly reveals confidence at the bottom rung of the capital structure still remains AWOL, and this after tens of trillions of dollars of lender of last resort largess has been thrown down the trans-Atlantic banking system's sink hole. This week's fraud manufactured with heavy doses of nonsense coming from a rumor mill whose credibility is in a race to the bottom with the Fed but begs a Jerry Maguire moment: show me the money! If, as was the case in early-July 2011, this proves impossible, then there remains every reason to believe the lug nuts are about to fall off this market.
Team Fraud's "fiscal cliff" hysteria has met its likely outcome by way of an EU budget summit that collapsed as fast as it began. What motivation do Democrats in Congress have to negotiate with an opposing party whose legislative initiatives directly brought to fruition imperatives leading to this so-called "fiscal cliff?" The turncoat leading their party certainly will neither need support for his reelection, nor provide anything of value for theirs. So, there's little chance a "grand bargain" will materialize before the 113th Congress is gavelled into session in January.
Then, there was today's rumor of a Fed readying to add another $40 billion per month to its MBS bailout program (a.k.a. QE3) once "Operation Twist" expires in January. Oh yeah? Better tell it to Richmond Fed President Jeffrey Lacker and his like minded supporters making up the majority in the U.S. House of Representatives.
As I was saying, the rumor mill is as broken as the Fed. Meanwhile, the market's technical state simply is abysmal, as I likewise was saying. There are no shortage of measures in worse shape now than was the case in early-May 2012, and early-July 2011 before that. The only saving grace is this week's bump in advancing issues versus decliners. Yet this has occurred in the face of volume showing absolutely no sign of any expansion in long interest. Rather, a pre-programmed "buy the dips" current probably is better assumed behind this week's more than outsized reversal higher (the authors likely being trapped banks, hedge funds and private equity groups whose books are saddled with more than their fair share of wildly mispriced garbage that, more or less is without any market outside the Fed, and so in desperate need of a shine wherever it can be had). Here is where similarity to late-June, early-July 2011 is most compelling.
Now, if something other than heartbreak were likely in store—if still much-touted "value" yet priced into stocks were in fact true cause for owning them—then why wouldn't a not-so-subtly broken price discovery mechanism be exploited to drive share prices considerably lower, this that so-called "bargains" could be had at insanely cheap prices? To my way of seeing things the answer is simple. There exists so much vulnerability threatening asset prices higher up in the capital structure that, a state of panic rather still to this day drives a highly concentrated, collective consensus to exploit the stock market's broken price discovery mechanism in the very manner demonstrated this week (and particularly today). As I have indicated for some time now, a persistently diminishing volume of shares exchanged plainly reveals accumulation is not behind the market's levitation.
So, the trend following the trans-Atlantic banking system's near total meltdown in 2008 remains intact. Underlying this week's advance certainly was no decided pickup in confidence based on a conviction central banks have arrested vulnerabilities threatening the banking system. That said, the preferred, alternate Elliott wave count presented here last Friday might need tweaking, this to the effect of slightly extending formation of the second "three" unfolding since early-October 2011. Specifically, wave b of (b) might prove to be still forming.
If the bankrupt pricks somehow succeed further exploiting a plainly broken price discovery mechanism to draw in enough interest to pay for the effort, then wave c of b of (b) whose formation would be seen beginning last Friday (11/16) could bring major indexes to exceed their respective September peaks over days immediately ahead (and this likely ever so slightly at that). Should this in fact occur, then wave a of b of (b) would be seen forming off June bottom to September peak (recall a view put forward here some weeks ago, this presented via the S&P 500, suggesting five waves up might have formed over this interim). Likewise, too, if wave c of b of (b) is in fact forming, then look for index momentum (see MACD) to peak below its early-May 2012 peak, which itself peaked below index momentum peaks of early July 2011, as well.
No doubt, I do not "like" this possibility. This all the less so given today's extraordinarily imbalanced relative strength as measured at 5-minute intervals...
Appreciating just how evidently desperate are those who affected this imbalance, though, let's leave open the possibility a burst higher over the next few days might take out September's peak and finally finish the fake, technically unsubstantiated, levitation characterizing the entirety of this year's trading following last October's "God save our sinking ship" panic. The market's subsequent setback still very well could dwarf anything seen thus far since March '09 bottom, this in keeping with the Elliott wave count I am presently siding with.
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