"Don't fight the Fed," some are fond of saying. Yet today we might reasonably wonder what, exactly, this means when both the believer and this object of belief are but one test away from being declared bankrupt?
Some color-coded "like from like" for your consideration. The market's upside appears considerably limited. Its technical backdrop rather suggests there's greater risk the market will come under increasing pressure over the immediate period ahead.
What do I know about pressure? Only that it has been building for some time...
We've previously contrasted the market's advance off its early-October 2011 bottom versus the same off its early-July 2010 trough. The lift off July 2010 bottom was technically well-confirmed right up to early-November 2010 peak, and likewise displayed a more healthy balance between buyers and sellers, such as creates a stable foundation upon which a market advance is more surely sustained. Not until technical weakness began building during 2011's first half was the market's advance challenged.
Contrarily, we see nothing of this healthy technical display in the market's advance off its early-October 2011 bottom. Rather are imbalanced bouts of momentary strength and subsequent, negative technical divergences indicating a qualitatively less sound foundation underlying the market's advance. Thus, unlikely are odds the market's present setback from its February 20th peak will prove similar to its pullback into early-December 2010 bottom. Instead, technical weakness already in evidence is likely to build only further over days and weeks ahead.
Friday's very notable air pocket hit at the open in all probability is but a taste of things to come. Pay no mind to distractions evoking memories of better days gone by. The market is in serious trouble, and is likely to remain so even if its recovery from Friday's incredibly soft open proceeds to lift major indexes to a nominal new high off October 2011 bottom (and March '09 bottom before that). This possibility of a nominal new high being reached is one we have already anticipated. It is in fact a reasonable outcome to be expected during formation of wave 4 of (c), this prospectively in demonstration of the Elliott Wave Principle's "alternation guideline" versus wave 2 of (c) unfolding from mid-September to mid-November last year.
* * * * *© 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.
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