Dangerously Loose Lug Nuts ~ The Risk Averse Alert

Friday, November 08, 2013

Dangerously Loose Lug Nuts

Yikes! Margin calls met on bad euro rate speculations and otherwise lint-filled pockets stitched with yarn spun from funny money made to sustain mispriced risk meet hands hot to trot for garbage whose likes mostly is being held tight, this evidently in desperate hope NASA finds benevolent life on Mars far enough away from the action to be easily convinced the trend will remain their friend so long as reckless monetarist boobs continue their reign on planet earth.

So, exercising the means by which a broken price discovery mechanism is deployed to freeze those whose fortunes all too likely are being set up for the taking for but pennies on the dollar, although for now sending indexes higher, still brings confirmation "something's not right," as has been true for a long time now...

Evidently, yesterday's heroes were today's zeroes, while some other neglected pieces of trash were sent on the circle jerk express. In other words, same sinking ship, different lifeboat was the scene of today's saga of a doomed expedition in Ponzi finance at a late-stage moment leading up to the ship completely breaking apart and slipping to the bottom of the sea. Blah, blah, blah. What else is there to say about this certain eventuality? There's only so much bailing out of a hopeless cause possible before the trapped crew either takes to the lifeboats or goes down with the ship.

We have come this week to consider just how close we are to the point of no return. Above is more evidence supporting this conclusion. I have labeled the above chart of the NYSE new 52-week high-low differential with the component Elliott waves applied Wednesday to the S&P 500 detailing wave (c) whose pending completion will end the market's counter-trend rally off March 2009 bottom.

Do you remember when in September 2012 the NYSE new 52-week high-low differential out of the blue shot to its highest peak over the interim since March '09 bottom? This was after having negatively diverged ever since April 2010 peak. That is to say as April 2010 index peaks were exceeded after the May 2010 "flash crash" settled out and the evolution from Fed exit strategy to infinite QE began, the NYSE new 52-week high-low differential continuously contracted right up until September 2012. Then, bam, grease was the way for central banks on both sides of the Atlantic and suckers took the bait, hook, line and sinker. This, as it turns out, coincided with the completion of wave v of 3 of (c).

With hindsight here we are able to objectively explain why wave 5 of (c) is proving the extended wave of the 5-wave sequence forming wave (c). Typically the 3rd wave extends, while the 1st and 5th waves tend toward equality. Yet with the very late and sudden display of technical strength we saw via the NYSE new 52-week high-low differential as wave 3 of (c) reached its completion, there was objective evidence that, once wave 4 of (c) completed in November 2012, the 5th and final wave higher would prove rather resilient, which in fact it has.

Unfortunately, the Elliott wave view taken here this week was never previously considered. If it had been, then resiliency we have seen this year might have been anticipated. Going into this year's trading we were looking for a higher market, but not lasting as long as it has. 2013 was thought a year likely to bring top to the market's counter-trend rally off March '09 bottom, and then a huge turn down. Well, the year is not out. The May-June setback this year revealed a rather large crack in the market's technical underpinnings. Neither has the wave 3 of (c) peak in the NYSE new 52-week high-low differential been exceeded. It more than likely will not be, either. Whether further, negative technical divergence need register here before wave 5 of (c) completes remains to be seen. As October's market lift failed to carry the high-low differential above its January 2013 peak, there may be no further negative divergence to be had. The lug nuts could come off any moment now.

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