Rebalancing? Or Trapped Pigs Squealing? ~ The Risk Averse Alert

Monday, March 18, 2013

Rebalancing? Or Trapped Pigs Squealing?

The past three quarters have seen index rebalancing deliver notable volume spikes, as well as negative price action over days immediately following the rebalancing (the most recent being Friday's)...

We might consider the ultimate potential of this negative index rebalancing follow-through both in the framework of the Elliott wave count we have been siding with here for a few weeks now, as well as recalling the negative backdrop presented here last week, this at longer-term durations extending over the past three years.

Now, via the broad market measure that is the NYSE Composite Index we see full display of increasing underlying technical weakness developing as the market's advance off mid-November 2012 bottom traces out its five waves (these forming wave c of b of (b)). As you can see, noted above are 4th wave versus 2nd wave [relative] deterioration displayed via RSI (top panel) and MACD (bottom). This has yet to occur with other major indexes like the S&P 500. By these same measures (i.e. RSI and MACD) 4th wave versus 2nd wave technical deterioration has yet to register.

Oddly enough the NYSE cumulative advance-decline line remains the same old [pseudo] champion it has been these past three years. Truth remains, though, that were the NYSE Composite index indeed tracking the cumulative advance-decline line, it might be at the gates of St. Peter by now. Yet the index lags badly. There's no real money going into the market, and there hasn't been for a long time.

Should the NYSE Composite be nearing its top, then—the above Elliott wave count suggests this is imminent—its long-standing lag, but paused since mid-November 2012 as banks and financial secured their unending QE (the likes of which simply cannot last forever, and this even if JPM becomes shark bait), might soon be reasserted. Were the broad market to start choking again, while spotlighted indexes (like the Dow Jones Industrials and the S&P 500) continue effectively masking this over coming weeks—remaining fairly buoyant, yet not advancing much higher from here—then our [Elliott wave-based] outlook anticipating a bloodbath sometime in 2013 would be bolstered by this added, physical evidence revealing an already long-evident capital deficiency sustaining the broad market's continued levitation is worsening.

Word on the Street
* * * * *
© 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.

Nothing is set in stone. Nor is the stock market's path of least resistance always known. More often than not, there are no stock index option positions recommended.

There's an easy way to boost your investment discipline...

Get Real-Time Trade Notification!