All the more interesting, too, is the following prospective view of upcoming developments putting the market in quite bad technical shape at what might prove the worst possible moment...
There positively is no doubt about the present likelihood the market is on the verge of sinking. Its technical state simply finds pervasive, objective agreement warning of trouble straight ahead. December, indeed, could be a decidedly difficult month of trading.
Now, although an "outside year" probably is not likely at this point, a trip down to the intermediate-term line of support drawn above (which for a brief time in '08 and '09 was resistance) is a very credible possibility. Such a setback would be enough, too, to meet a previously expressed outlook here anticipating the worst downdraft since March '09 bottom upcoming.
As you can see from my markup, a head and shoulders top appears to be forming. This one has a double head. Not unusual. It's a tendency noted in "Technical Analysis of Stock Trends," as well.
Looking forward we can anticipate the right shoulder's symmetry with the left, and so expect this head and shoulders top to complete its formation anywhere around the middle of next year. "Sell in May and go away" anyone?
As for the Elliott wave count, a "double three' would be seen forming. The first a-b-c up unfolded from March '09 bottom to February 2011 peak. Then, the connecting "x" wave developed into early-October 2011 bottom. And finally, the second a-b-c would be seen forming right into the peak of the right shoulder, with its component waves "alternating" as should be expected. Likewise from March '09 bottom the first "three," a 5-3-5 "zig-zag," and the second "three," a 3-3-5 "flat," would satisfy the Elliott Wave Principle's "alternation guideline." As we see here, too, the Elliott Wave Principle's "like from like" framework finds the component waves of the second "three" (these forming since October 2011 bottom) unfolding in the same fashion as the "double three" itself.
This prospective corrective wave up from March '09 bottom is seen forming a larger wave B, the middle wave of an a-b-c corrective wave down from October 2007 peak. Wave C [down] would commence, then, when the head and shoulders top completes sometime around the middle of next year. As ever, major indexes are targeted to fall to levels last seen in the 1987-1994 period (at least).
As was suggested in "Will Weimar Hyperinflation Come to the U.S.?," 2013 could mark both a major index top and bottom, this a la 1987 in fact. The manner in which the Elliott Wave Principle accounts for "time" using Fibonacci numbers as a measuring stick provides a basis for making this projection. This same, time related, Elliott-based framework also is the reason why the above head and shoulders top becomes a bit more interesting. For your consideration is the crazy fact the 69th anniversary of D-Day (June 4, 2013) is 610 weeks from September 11, 2001 (610 being a Fibonacci number).
Oddly enough, too, an annular Solar Eclipse will occur on May 10, 2013 and be followed by a penumbral Lunar Eclipse on May 25, 2013. How about that. All perfect timing for a big "c" wave down and possibly a "legacy" to be built to boot.
So, sufficient for the moment, then, will be a December 2012 producing a downside reversal on a yearly chart. Already in the books has been a higher high than was reached in 2011. All we need now is a lower close than that on December 30, 2011. This in fact would be just as ominous as would 2012 being an "outside year." Of course, this doesn't have to happen. Yet if a downside reversal should in fact come to pass, then reason to think 2013 could be one lousy year—possibly the worst ever—will become all the more interesting.
There is a lot of technical evidence right now supporting this outlook's probability to be sure. We were reminded this week, too, Morgan Stanley's forecasting sherpa had projected the S&P 500 to close out the year 2012 at 1167. To my way of seeing things right now there is a good chance the man will look like a genius! I wonder if he was looking at the same line of intermediate-term S&P 500 support? I also wonder if his firm further increased its put options position today, as once again, curiously, put options were all the more popular during today's otherwise uneventful trade.
* * * * *© 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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