Liquid Exhaustion ~ The Risk Averse Alert

Monday, December 02, 2013

Liquid Exhaustion

Liquid exhaustion is the message the following technical measure is giving in support of the prospective Elliott wave count we have been dissecting here over the past few days...

So far, each successive corrective wave sinking the market over the interim since early-October 2011, when a prospective Elliott "rising wedge" began to unfold, is seeing the NYSE new 52-week high-low differential sequentially deteriorate. As such, we discover here objective technical evidence revealing increasing exhaustion registering at higher market lows, thereby raising probability a rising wedge, indeed, is forming.

The unexpected spike this measure registered at the NYSE's mid-September 2012 peak coincided with the Fed ratcheting its QE in order to provide unbounded liquidity needed to keep up appearances for a hopelessly insolvent banking system. The high-low differential's subsequent expansion likewise, however, is substantiating probability a rising wedge is marking the final leg of the market's counter-trend rally off March 2009 bottom. Ever since the Fed's fateful decision to try Wiemar on for size (QEternity), the NYSE high-low differential certainly has been displaying considerable more dynamism than at any time since March '09. As this dynamic display is seen coinciding more broadly with formation of an Elliott 3rd wave—in this case wave (c)—having become pronounced just prior to, and now during formation of its 3rd component wave—namely wave 3 of (c)—we find here added evidence supporting our current Elliott wave-based view regarding developments in the aftermath of the '08 calamity. First was lender of last resort rescue reversing 2008's collapse in a move sending the market higher, traveling quite far, and quite fast, only to be followed by a dawning of understanding central banks are trapped and forced to increase, too far and too fast, their extraordinary backstop, even if by calamitous crisis if need be. This fundamental reality supports our technical proposition an Elliott rising wedge is currently unfolding. The substance of "exhaustion" is seen. Taper that, Famiglia Confetti.

An Elliott "rising wedge" completing the market's counter-trend rally since March '09 is substantiated by the NYSE's new 52-week high-low differential over the interim. More recently this technical measure is displaying both boundless-Fed-liquidity-founded dynamism, as well as underlying exhaustion of market capacity—animal spirits—otherwise needed to sustain the market's post-2008 "recovery" in the midst of there continuing to be no pickup in demand whatsoever at the bottom of the capital structure (the volume story).

With insolvent albatrosses more or less holding on for dear life (albeit with no immediate reason to scale back risk exposure to any significant degree) we probably will see the NYSE new 52-week high-low differential reach a new, post-March 2009 peak over coming weeks. As mentioned Friday, we might expect some technical measures to register their best reading of the past five years as the 3rd wave of a prospective Elliott rising wedge completes over coming weeks. The NYSE new 52-week high-low differential appears to be one such measure likely to do so.

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