Southbound Bloodhound ~ The Risk Averse Alert

Tuesday, March 26, 2013

Southbound Bloodhound

I'm here to report (and I'll bet you're here to confirm) the Minnow Market whose name shrunken volume has written across the stock market's stern is taking on leaks and, indeed, is at grave risk of going down, even to the bottom of the sea...

NYSE Bullish Percent Index

Not a pretty picture shaping up here. Other recent occasions when the momentum of NYSE issues supporting the market's advance (as measured by the Bullish Percent Index) was fading and threatening to cross below the 0 line (see bottom panel), the market soon afterward came under pressure.

As you know, the case made here over recent days is suggesting sometime later this year March 2009 bottom could be taken out like it was never there. Confirming this possibility would be an initial leg lower promptly developing (as in very, very soon) catching the majority off guard. A very reasonable target in this upcoming, initial phase of 2013's prospective rout is that area of support joining bottoms formed following market pressure in 2010, and then again in 2011. This outlook, then, targets 1150-ish in the S&P 500 and 6500-ish in the NYSE Composite index. Again, a decline of this sort could serve to elevate the probability of a bloodbath later this year.

By the looks of the market's current technical state, this being in evidence above via the NYSE Bullish Percent Index, the probability of a significant setback developing sometime in the very near future certainly appears elevated. Now step back and again consider subtle technical differences accompanying the market's comeback, first following its 2010 stumble, then following its 2011 tumble. The latter recovery, no matter how resilient the market has remained, rather exposes a qualitative technical weakness we have covered here from several angles on various occasions over the past year or so. We might regard this underlying weakness, then, in the context of an upcoming, anticipated setback, which, itself, could turn into a nasty spill, and, indeed, even evolve into a terrible nightmare later this year.

The market's underlying technical state rather supports a likelihood that is virtually on no one's radar to be sure. Yet there it is, more or less substantiating that worst case scenario developed here over the past couple days. Obviously, it's still too early to be smelling blood. Still, when we do, we'll have a good idea why we do, and then, what could soon follow.

Word on the Street
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