A Confidence Fairy Flown Looks Hard Down ~ The Risk Averse Alert

Wednesday, July 03, 2013

A Confidence Fairy Flown Looks Hard Down

Seriously, there isn't a technical measure among the bunch not hanging precariously still, following on the same last week. as well. So, should we be picturing iron rivets popping free as the ship's hull scrapes against an unseen iceberg? Possibly...

We might conclude that, elevated NASDAQ momentum volatility (see bottom panel) precedes significant tops, both per this index, as well as more broadly speaking. Presently we see elevated NASDAQ momentum volatility going back all the way to 1995, more or less continuously. We should note here, too, that prior to 1995 NASDAQ's advance in percentage terms was of greater magnitude than was its 1995-2000 rise, while its pre-'95 advance coincided with momentum volatility relatively more stable.

So, is a top of greater magnitude than NASDAQ's Y2k peak possibly in the making, given the steadily elevated state of NASDAQ''s momentum volatility? Could this elevated state be a technical face of what is widely termed "imbalance"?

NASDAQ's more muted relative strength since Y2k further raises a significant top's possibility. RSI's fade accompanying NASDAQ's lift to new, post-2009 peaks another ominous development. NASDAQ's advance from late-1990 to early-1993 provides a very different relative strength contrast (positively accompanying a more powerful NASDAQ recovery to boot).

NASDAQ's 1987 bottom still remains in the crosshairs to be sure: open game to 2021, give or take a year or so. Above is a reasonable, big picture, technical-evidence-based compass reading substantiating an Elliott wave view making 1987 a likely target in the grand scheme of things going back many more years than we have been living.

Of course, there might not be enough evidence to categorically elevate any such catastrophic possibility. Still, the more the betterer...

Late-May we were noting the suspicious fade of NASDAQ's relative performance versus the S&P 500 (see bottom panel). The contrast we made was to the period leading up to the market's August 2011 swoon. Above is added markup updating this contrast with further evidence supporting its relevance.

How soon a hard turn south might likely develop remains uncertain, while a hard turn south likely upcoming is less uncertain still...

Shouldn't a bull market with staying power be characterized by an advance having a fairly broadening impact? Then why are the NYSE and NASDAQ Composite indexes both so decidedly lagging the S&P 500? Even if this phenomena partly is a function of differing ways these indexes are computed, the relative performance disparity we are seeing suggests something nonetheless revealing is afoot.

A tenuous advance evidently is the consequence of Confetti's perpetual liquidity machine venturing to feed a larger, perpetually expanding leverage behemoth. All the more worrying, then, is increasing pushback against this arrangement's workings. Risk of an incredible rout is no exercise in hyperbole. The market's decidedly precarious technical state reveals the confidence fairy truly has flown.

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