The Gold, the Bad and the Ugly ~ The Risk Averse Alert

Monday, April 15, 2013

The Gold, the Bad and the Ugly

Maybe I should compose my analysis even later than is already the case? Today was supposed to happen last week! Much, much longer ago, too, was my negative view toward gold presented. Better late than never to be sure, especially as the barbaric relic keeps stocks company beside a mountainous derivatives dung pile...

So much for the fat 55% of individual investor's bearish as a contrary indicator? Well, maybe instead of a strictly static view toward sentiment generally, something more dynamically in tune with the moment is in order. We will do well here recalling the awful investor sentiment of late-September, early-October 2008. This had no effect emboldening animal spirits and firming up support under the market's floor over the course of its October 2008 slaughter.

Poor sentiment among individual investors might be considered a growing political threat at this point. Call it Fed fail for simplicity's sake. Even if a hyperinflationary policy could light a fire under the job market, will it ever again turn a home into an ATM supplementing stagnant incomes? Not likely. Confidence in that game has gone the way of the dinosaur, while ceaseless fiscal squeezes everywhere reveal poverty is only a bankrupt Ivy League ideology turned corrupt policy away.

It's getting harder to sell opportunity in free market prosperity, and individual investors simply cannot help but become keenly aware of this, whether openly admitting it or not. This presents a formidable political problem as solutions promoting stability and growth both become clearer and only increasingly imperative. Bombings in American cities should but hasten the pace at which optimism in illusions fade, leaving more and more criminals at risk of finally being corralled by the long arm of natural law. Political cover these thus far have been afforded only too likely will fail to be extended, and this at any price.

The seemingly fragile state of the individual investor, then, might best be considered a reflection of growing likelihood that, out of utter necessity will be change we can really believe. Before I get too starry-eyed, let's just say apathy is so 1995 and this is 2013. Individual investor sentiment is bound to reflect this. This is not to say last week's surprising sentiment survey is better discounted. Rather, we should regard it in a suitable context fitting the moment, much like early-October, 2008...

You might have noticed in the chart of the NYSE advance-decline differential above was a question asking whether today's might be suspected accompanying the start of an Elliott 3rd wave much like a similarly "outside" differential accompanied the market's advance on January 2, 2013 when wave 3 of (c) began its ascent. So, per the Elliott wave count supposing 5 waves up from mid-November 2012 are forming, we might soon discover wave c of 4 is in the midst of unfolding (a "c" wave being an Elliott 3rd wave).

Now, obviously, entirely tentative is the shape of things to come in formation of wave 4 of (c) depicted above. Yet in its further evolution we should see technical deterioration typical of 4th waves versus preceding 2nd waves. Per the S&P 500's RSI (top panel) and MACD (bottom) we have yet to see this (while the NYSE Composite index already displays this typical characteristic). Given the prospective shape of things to come suggested above, the S&P 500 likewise should display this in due course.

This matter of typical technical deterioration coinciding with 4th waves versus 2nd waves generally will be reflected across a broad spectrum of measures. Here we see the Volatility Index still some distance from manifesting this characteristic. So, chances are today's distress is bound to get uglier.

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