The Dead Horse Corral ~ The Risk Averse Alert

Wednesday, June 05, 2013

The Dead Horse Corral

Further detailing yesterday's outlook, while at the same time keeping with the still valid view that, "something's just not right," we might suppose the following Elliott wave count applied to the S&P 500 quite fitting our near-term outlook siding with possibility the market is likely to spend the next several weeks topping prior to decisively turning over sometime later this year...

Something's just not right? Just look at that diminishing volume accompanying the S&P 500's advance. No need to beat that dead horse once more. It has been adequately explained to no end and it is very, very significant. That is at least as far as it substantiates probability a 40%-ish decline later this year very well could materialize. A similar state of affairs was acutely in evidence as the market was turning over during the first half of 2011, and what came of it now is history. Interestingly enough, an Elliott "b" wave was forming then, too (i.e. wave b of a of (b)).

Per the above Elliott wave count possibility, its confirmation likely will find both RSI (top panel) and MACD (bottom) during current formation of wave 4 of c of b of (b) sinking below levels each measure reached during formation of wave 2 of c of b of (b). That is to say formation of wave 4 likely has considerable time remaining before it is complete. Whether the S&P 500 reaches a new record high over the interim remains to be seen. The possibility nevertheless exists and there's probably a better than 50-50 chance a new high will be reached.

Yet also mentioned yesterday was the prospect that, during the market's anticipated current period spent topping and losing momentum major indexes like the S&P 500 might fail to reach much beyond their current peaks, if not fail entirely in fact. In Elliott wave parlance we might picture a "5th wave failure" per the S&P 500 above, much as was the 5th wave of wave 1 of c of b of (b) that unfolded last October. What's of significant note on this account is the fact the S&P 500's momentum (see bottom panel) peaked during mid-September 2012 formation of the 5th wave of the 3rd wave of wave 1 of c of b of (b). Given the above Elliott wave count we likewise see the S&P 500's momentum similarly peaking during formation of the 5th wave of wave 3 of c of b of (b). So, indeed, the S&P 500 could be setting up for a so-called "5th wave failure" as wave  c of b of (b) completes over coming weeks, thereby nicely setting up an anticipated 40%-ish swoon forming wave c of (b).

Another dead horse in the "something's just not right" corral. This one, though, is really, really stark. Muted advancing issue participation during this year's market advance combines with muted volume to bake a cake whose prime ingredient can be fairly assumed nitroglycerin. Seriously, this is bad, bad juju.

Once again we might assume that, during formation of wave 4 of c of b of (b) the NYSE's advance-decline differential likely will sink below its worst registered during formation of wave 2 of c of b of (b). At this point we might suppose the likelihood is practically a slam dunk. The market's internal state seriously reeks of rotting garbage, much as it has been all year...

Word on the Street
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