All In Perspective ~ The Risk Averse Alert

Tuesday, June 04, 2013

All In Perspective

Here is added perspective on an S&P 500 whose components are in the aggregate as bullishly poised now as in late-2009 and early-2011...

Near-term prospect we're presently siding with is assuming some weeks are likely to pass before the market's advance [ultimately] off early-October 2011 bottom ends. Over the duration we should see index momentum (see MACD) begin to deteriorate and register negative technical divergences prior to the market turning over and heading south. The lead up to the May 2010 "flash crash" and the market's August 2011 rout similarly saw momentum turning over well in advance. These precursors are circled above. Both followed extreme peaks reached in the S&P 500 Bullish Percent Index. It seems reasonable to expect the same negative momentum precursor to develop over coming weeks now that the S&P 500 Bullish Percent Index once again has reached its very upper extreme.

Now, curiously enough, the S&P 500's momentum as measured by MACD has successively confirmed the index's advance off March '09 bottom. Peak momentum early-2011 bested peak momentum late-2009, while peak momentum so far reached in May 2013 has exceeded peak momentum of early-2011. Thus, momentum-wise, the S&P 500's advance is technically confirmed, thereby indicating the S&P 500 has further to rise off its March 2009 bottom before all is said and done. This is evidence we might, first, better regard constructively and, more importantly, weigh toward gaining clearer insight into what are more likely Elliott wave-based possibilities looking forward.

Looking forward, too, we likewise cannot fail looking back. A conclusion we have come to here on several accounts has substantiated a view that, "something's just not right," which perspective typically is the result of an Elliott "b" wave's formation. Thus forewarned, the market's prospective gassing indicated above still is quite reasonably anticipated. We need only assume wave b of (b) has been forming off early-October 2011 bottom to justify fear that, wave c of (b) is upcoming, lopping a good 40% off the S&P 500 sometime later this year.

The negative near-term view projected above certainly found sound technical basis to assume the same sort of negative turn of similar dimensions right about this time last year. Yet now adding to the S&P 500's positively confirming momentum mentioned above is the pickup in the NYSE's new 52-week high-low differential in evidence since last September. Taken together, we can now better make the technical case anticipating wave (c) of B higher, unfolding once wave (b) of B completes later this year. This is more than what we could have reasonably claimed this time last year when a similar turn lower justifiably could be anticipated.

Although I will pass here on providing any detail, there are cyclical considerations strongly supporting the above view forward, too, both per the market's impending downside, as well as its subsequent upside.

We might further recall that, going into the market's April 2010 peak there was a lot of discussion about the Fed's "exit strategy." We have seen conclusively already the only thing the Fed is presently capable of exiting is sanity. We probably can expect much more of the same coming from the present iteration of hyperinflation hysteria driven by growing threats bond vigilantes are becoming increasingly restless. As ever, central banks are trying to talk down interest rates in the face of unanimous evidence revealing their trapped, hopeless position leaves no choice but hyperinflate until the cows come home. That's about as far as we should be willing to give any credence to the current discussion about the Fed or any other global central bank curtailing QE. It's all talk with nothing backing it up, which means interest rates likely are going higher, leaving central banks no choice but hyperinflate even more aggressively.

No shortage of added credit market vulnerabilities like those that materialized in the summer of 2011 exist presently, and these we can expect will be exploited by Team Fraud in a bid supporting core currencies (the U.S. dollar and the British pound) driving a broadening array of EMU nations (Spain, Italy, France, Germany) deeper into the abyss. Somehow, the need to hyperinflate must be rationalized behind a mask disguising the fact that, eventually, the very core will be hurled into the abyss, as well. The past nearly twenty years might not have presented enough evidence for most to conclude "stability" is not the guiding mantra of  policymakers among the world's leading western nations, but coming years should change that, while over months immediately ahead we likely could see added confirmation a whole lot of nasty still is lurking in the wings.

So, there's a fundamental case for anticipating an upcoming crisis whose effect sinks the market to an extent worse than anything yet since March '09 bottom. Likewise, there's every reason to believe some decided echo of 1923 Weimar Germany will become our subsequent reality. Initially, a rising stock market in a rising rate environment might preserve purchasing power in the face of consumer prices likely to astronomically increase, but eventually even refuge at the bottom of the capital structure will fail, much as occurred in 1923 Germany.

One other passing takeaway from the above chart worth noting reflects on the manner in which the market might spend the next several weeks topping in its lead up to decisively turning over. We see that in 2011, following both RSI and MACD confirmation of the S&P 500's advance off March '09 bottom into February 2011 peak, the index's ultimate peak on May 1, 2011 was not as decisive as was its April 2010 peak versus its January 2010 peak. Rather, the index's extension into higher ground was only nominal. Maybe this time around, following recent indication the index's components are "all in," there will be no extension at all into higher ground over the immediate interim during which we are anticipating the index's momentum to begin turning over. Weakness leading to the start of wave c of (b) [down] might prove even more conspicuous than was in evidence prior to the August 2011 swoon. This seems a possibility made all the more likely by the fact RSI negatively diverged at the S&P 500's May 2013 peak versus its February 2011 peak. Something to keep an eye on to be sure.

Word on the Street
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