Doomsday Suddenly Appears At The Door ~ The Risk Averse Alert

Thursday, May 30, 2013

Doomsday Suddenly Appears At The Door

I heard someone today compare the present investment environment to the 1950s. No, it wasn't Laz. Good lord, the 1950s(!) ... when the U.S. was a net exporter of high end capital goods, as opposed to today's high end (and massively overpriced) trash. There is just no comparison.

Pity, the monkey see, monkey do crowd, although reported to be abuzz with concern for rising interest rates, evidently has yet to connect the dots per the threat this presents to central bank solvency. I was alive only six months in the 1950s, but I can assure you the threat of central bank insolvency was not living then. That we can be sure of.

Now, I hate to bust up the hyperinflationary bailout makes the financial world higher game, but it looks like Mr. Market could be a lot closer to panic than we have thus far been assuming...

Not the prettiest 5-wave Elliott channel, but technically well-substantiated nevertheless. What we see in the 5th wave is called "throw over."

This is the first time the above Elliott wave view has been presented here. What's most intriguing is prospect that, 5 waves up from early-June 2012 seen forming wave (c) of an a-b-c corrective wave up from March '09 bottom are just about completed, if not having done so last week.

Added technical substantiation to the above Elliott wave view is provided via the NYSE new 52-week high-low differential. No longer a mystery is that sudden, astonishingly out of the blue peak this measure reached last September. It coincided with formation of wave iii of 3 of (c) and thereby demonstrated the greater degree of dynamism typically accompanying Elliott 3rd waves.

You will recall this measure had been persistently languishing after peaking late-April 2010. With each new high, post-March '09 bottom, the NYSE Composite Index reached following the May 2010 "flash crash" the NYSE new 52-week high-low differential kept falling short of its prior peaks. Then, out of the blue came last September. Now an Elliott 3rd wave clearly is seen substantiated. All the more is this seen over the course of this year's trading, as well, assuming the 5th wave of wave (c) has been unfolding, as is indicated in the first chart above (remember, a "c" wave is an Elliott 3rd wave, so typical dynamism rightly is accompanying its formation, albeit somewhat diminished over the interim the 5th wave of wave (c) has unfolded).

On all counts we see technical deterioration develop, 4th wave versus 2nd wave, as 5 waves up from early-June 2012 have unfolded. We see this via the NYSE Composite's RSI and MACD, as well as the NYSE new 52-week high-low differential. We also see this same technical deterioration, 4th wave versus 2nd wave, relative to the 5 waves up from mid-November 2012 (these are assumed forming wave 5 of (c)).

Peak volume came during formation of wave iii of 3 of (c). Peak RSI, as well (see the first chart's top panel).

Now, we still have the NYSE Composite's momentum (see the first chart's bottom panel) falling short of its February 2012 peak, which itself fell short of its October 2011 peak. Well, the fact of the matter is the a-b-c Elliott corrective wave up from March '09 bottom is reasonably assumed forming wave B of an a-b-c corrective wave down from the NYSE Composite's October 2007 top. Recall, when an Elliott "b" wave forms often the analyst is left to conclude "something's just not right." The NYSE Composite's momentum—deteriorating since October 2011, and all the more as wave (c) of B has formed—certainly invites this conclusion. Indeed, this condition is but icing on the deteriorating volume cake, which, itself, likewise is suggesting "something's just not right."

There is a lot of bullishness out there, while I have contrarily argued with utter consistency that this is entirely misplaced. Resumption of the market's correction of 5 waves up from 1932-2000 (or 2007, depending on the index) certainly has been a long, frustrating time coming. Today's view of things rather suggests the market's hard turn south could begin very soon, that is if last week's peak did not mark the start of a severe swoon whose portent still could find major indexes sometime later this year taking out March '09 support like it never existed. I remain that bearish. The only thing from the 1950s which to compare my outlook with would be found at an above ground nuclear bomb test site. We should all pray any prospective similarity, now versus the 1950s, ends with these words and not in tragic fact turning some city, foreign or domestic, into a desert...

Word on the Street
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