Marked above in red is foreboding technical circumstance, while in green conditions conducive to the market remaining buoyant. We find much the latter supporting likelihood the market is well-poised to move higher still. To the "bad" is but one matter: volume. Its message principally substantiates a steady as she goes outlook wherein the market's further advance is held relatively in check.
Both RSI (top panel) and MACD (bottom) certainly exhibited an Elliott 3rd wave's dynamic character coincident with the market's advance since early-October. All the more noteworthy, however, is this advance occurring amidst stunted demand. On account of this, really, we might confidently anticipate the market's advance going into year end is likely to be measured.
Now, from the start of the year to the market's April peak an Elliott 3rd wave unfolded. This to wit was wave 3 of a [of 3 of (c)]. Granted, volume over that interim likewise had been on the decline from what had accompanied prior market advances. Yet relatively greater demand then versus now truly makes a statement in contrasts, and rather establishes technical grounds for anticipating wave 4 ahead, which will unfold once wave c of 3 completes sometime over the next few weeks.
As a prospective Elliott "rising wedge" forming since early-October 2011 approaches its completion, evidence revealing underlying technical weakness rightly should come into view. Here we see this especially by way of demand-starved volume accompanying present formation of an Elliott 3rd wave (i.e. wave c of 3 of (c)).
The current period's more blatant manipulation of a broken price discovery mechanism certainly must be exciting the speculative itch to cash in. Of course, there is a tax advantage to delaying until the new year any move to book profits ... while derivatives can aid this cause to be sure. Thus, our outlook into year end anticipating a measured advance appears well-founded on both fundamental and technical grounds in fact.
There is one other noteworthy facet of market behavior since mid-November 2012 start of wave 3 of (c) we should point out here. Elliott 3rd waves forming over the interim have been launched with a bang. RSI's strong turn higher is seen a common theme (circled in green). So, being as wave 3 of c of 3 of (c) is on the verge of unfolding, we can turn to RSI for confirmation this anticipated Elliott 3rd wave in fact has begun. Remaining to be seen is the extent to which this confirming circumstance electrifies an undercurrent otherwise expected to remain relatively measured and subdued, this in keeping with a now well-established, demand starved tenor underlying the market's advance especially since October.
* * * * *© The Risk Averse Alert — Advocating a patient, disciplined approach to stock market investing. Overriding objective is limiting financial risk. Minimizing investment capital loss is a priority.
Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.
Nothing is set in stone. Nor is the stock market's path of least resistance always known. More often than not, there are no stock index option positions recommended.
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