Desperate Extremes at the Precipice ~ The Risk Averse Alert

Wednesday, November 13, 2013

Desperate Extremes at the Precipice

Throughout the course of the market's Confetti-fed levitation there have seen several moments when technical extremes reached have marked a high point from which the market turned down. Some of these have registered in measures that have since done nothing but negatively diverge. Yet garbage levitation has proceeded unabated (in an iguana act of one eye on ROI and the other on the exits) while the banking system's insolvency is desperately masked.

Anyone claiming the Fed's actions are not directly lifting asset prices is out to lunch. Why CNBC would allow any such opinion to air on its network could only speak for how desperate things really are among the network's advertisers. In fact we might suppose desperation is behind technical extremes reached at high points from which the market subsequently has turned down since early-October 2011 when wave (c) of B began.

We see here on a micro time scale an example of technical extremes being reached. This is the S&P 500 at 1-minute intervals over the past two days. Although it is not unusual to see RSI reach above 80 at market opens, it is fairly unusual to see this intra-day. Today this occurred not once, but three times! Considering the market's weakening underlying technical state presented here over the past week, we might conclude today's performance displayed a certain measure of "desperation" like that on several occasions over the past couple years while wave (c) of B has unfolded.

Given RSI's reset during today's 2:00 hour sinking the measure to 20, which was followed by a market lift carrying RSI for a third time to an unusual upside extreme, and given that today's advance was confirmed every step of the way higher by the measure of its momentum (MACD), we will probably see what will prove to be rather muted follow-through tomorrow, the likes of whose effect in all probability will result in negative technical divergences registering at 1-minute intervals, as well as other intra-day time intervals.

So, the question now is, given that today's lift to a new, post-March 2009 high (and, indeed, a new record high) carrying the S&P 500 above its late-October peak shows that wave (c) of B continues forming, what are immediate possibilities forward?

Well, given still very much intact underlying technical weakness, we have to conclude the market likely will sooner come under pressure than explode higher still. What we don't know here is whether forming since late-October peak is the 4th wave of 5 waves forming wave v of 5 of (c) (wave 5 has been forming since mid-November 2012), or if whether October's lift off wave iv bottom formed but wave 1 of v, with wave 2 of v currently in the midst of forming. There's also a possibility wave v of 5 of (c) might form a "rising wedge."

Again, given still very much intact underlying technical weakness accompanying the market's continued resiliency, we might better suppose some measure of weakness is in order here. Yet no matter which way you slice it, wave v of 5 of (c) still has more room to run. Now, it's possible, too, today's soft open completed wave 4 of v of 5 of (c), in which case we are but a pebble's throw from the precipice. Interestingly enough, we see via the S&P 500's RSI (top panel) typical 4th wave versus 2nd wave technical deterioration contrasting the prospective wave 2 of v to wave 4 of v. Granted, this so-called "technical deterioration" appears rather slight, so it seems reasonable to suspect a bit more demonstration of "technical deterioration" might be in order to better confirm this prospective view that assumes the 4th wave of 5 waves forming wave v of 5 of (c) is in the midst of forming.

All told, it has been a loooong time since we have been able to zero in on near-term action in the expectation of a significant turn. I've got the feeling we'll not be disappointed by a surge defying our view here whose genesis last week suggests suckers are at the precipice.

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