Wednesday, March 31, 2010

A Market Near Being Turned on Its Head


Remember Carl Swenlin's inverse head-and-shoulders bottom? I detailed a contrary view of this last summer. My disagreement centered on two things:
  1. A lack of symmetry in the shoulders.
  2. No volume surge accompanying upside penetration of the supposed "neckline."
There's no need to change this view at all. Even the minimum objective (determined by the distance between the neckline and the head's top) still remains some distance away. And since absent are the above two prerequisite facets making for an inverse head-and-shoulders, there is every reason to suppose the assumed "minimum objective" likely will not be met at all.

Confirming this probability is the following Elliott Wave view from March '09 bottom...


$SPX

There is much to say about this view, beginning with wave 1 up, unfolding from March - June, 2009. Let's consider momentum's rate of ascent over this duration (MACD). The first sub-wave of wave 1 (i.e. wave i — not labeled) saw momentum's steepest ascent ... then, during the third sub-wave (i.e. wave iii — again, not labeled) momentum's ascent was less steep ... and, finally, during the fifth sub-wave, momentum's ascent was less steep yet.

Note, too, how during wave iv of 1 MACD fell below its low mark set during wave ii of 1 (thereby providing first signs of a weakening of the advance off March '09 bottom).

Now, consider how during the unfolding of five waves up from March '09 bottom to present, MACD reveals momentum's very same decreasing rate of ascent, wave 1 versus wave 3 versus wave 5 ... as well as the same degradation wave 4 versus wave 2.

Consider, too, how wave ii of 1 (unfolding late-March thru late-April '09) had an upward bias, whereas wave iv of 1 (May '09) more or less had a sideways bias. Contrarily, wave 2 had a more sideways bias, whereas wave 4 had an upward bias, thereby demonstrating how in a like-from-like formation the Elliott Wave Principle's "rule of alternation" can be applied.

So, then, what about the fact that, relative strength has registered its strongest reading during the unfolding of wave 5 (since early-February bottom). You might recall that, last summer, when what now is labeled wave 2 was thought wave 4, the market's advance in July '09 and coincident RSI surge to its then strongest reading (i.e. since March '09 bottom) was considered a reasonable technical development since five waves up unfolding off March '09 bottom were thought forming a C-wave — an Elliott third wave, which typically is the most dynamic.

Here again, then, we see the same development ... repeating. Yet given the incidence of momentum deterioration (MACD) noted above ... and now, relative strength deterioration, wave 4 versus wave 2, the significance of RSI's present surge should be thought any less reasonable than was the case last summer? Au contraire!

A most compelling technical case — the most compelling yet — suggests the market's advance off March '09 bottom is very near completion.

You might have noticed that, the upper parallel to the channel containing five waves off March '09 bottom touches the peak of wave 3, rather than wave 1. This is in contrast to how the channel was presented last Friday. Truth be told, though, it seems doubtful wave 5 will reach this upper parallel. Considering how momentum (MACD) presently is fading in much the same manner as occurred when wave v of 1 was nearing its completion, top to the counter-trend rally off March '09 bottom very well could be at hand ... long at last.


Fast Money
* * * * *

© 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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Tuesday, March 30, 2010

Stage Set for El Swindle Grande, Act II


The purpose of the Great Financial Swindle of 2008 was destroying the notion of "implicit government guarantees" and paving the way for explicitly saddling the American taxpayer with countless trillions of worthless credit securities illegitimately created via the Wall Street - City of London axis of fraud. Key in this effort was allowing Lehman Brothers to fall into bankruptcy, so to create a psychological benchmark of financial pain awaiting realization were threats of insolvency of other "too big to fail" private enterprises made manifest. With that terror threat now well-established the push to "reform" the financial regulatory system brings any sane observer to ask:

Can this nation's woefully inept political leadership do anything other than increase by a couple orders of magnitude the dollar amount of hopelessly insolvent credit securities taxpayers explicitly are backing?

It seems this likelihood is implicitly affirmed by FDIC chairwoman, Sheila Bair in an interview with CNBC's Maria Bartiromo...




According to Bair, following financial reform, losses will be fully absorbed by shareholders and creditors. Well, glory be! Now, if only these claims represented such equity as could contain the damage done by a "too big to fail" institution's demise. If only a mere lack of regulatory authority were at the root of troubles leading to the swindle of '08.

Given the degree to which collateral assets have been leveraged, given the extent of financial interdependencies tied to the alphabet soup of technically insolvent credit-related securities clogging the books of financial enterprises of every stripe, and given the magnitude of fraud employed to disguise this fact, any proposal assuming there can be an orderly unwind of insolvent institutions without putting taxpayers at risk is, at first blush, an exercise in fantasy, and given a moment's thought, better suspected an act intending to usher in the next phase of a swindle whose purpose from the very beginning arguably has been to incapacitate the power of the U.S. government to exert its authority in a manner returning strict regulatory oversight to the financial sector.

Absent an honest accounting of assets and liabilities on financial institution balance sheets occurring prior to deliberations on reform measures, the specter is raised that, the axis of fraud will be left unchallenged, and so, unimpeded from imposing measures best suited for furthering its position over the financial affairs of both the private and public sectors. Indeed, given the qualities of political leadership whose careers have been an exercise in passive submission to the greatest fraud — Ponzi scheme (structured finance) — ever hoisted upon a gullible, trusting people, and given the fact every last representative in the House and many in the Senate face imminent extermination from the political scene come November, one ought ponder how another prospective swindle might be concocted before the guillotine blade falls, this in order that the reform process might be hastened by that core of contemptible cowards making up Congress' "leadership."

After all, were not these the essential elements of the same dynamic delivering "reform" in '08?


Fast Money
* * * * *

© 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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Monday, March 29, 2010

Pictures of a Giant Sucking Sound


Here we find major indexes banging against their highest levels reached over the past year...


$NYA

Yet the number of NYSE-listed issues trading at new 52 weeks highs is sinking faster than Titanic...


$NYHL

Same story, too, over at NASDAQ...


$COMPQ
$NAHL

Were stocks being accumulated, rather than distributed, the number of issues trading at new 52-week highs likely would not be coming in so markedly.

Furthermore, were stocks being accumulated, rather than distributed, NASDAQ-listed issues hitting new 52-week highs would be exceeding NYSE-listed issues likewise hitting new 52-week highs, rather than lagging [badly], much as has been the case every step of the way higher since March '09 bottom.

And therein lies a rub. This persistent disparity seems not to matter one whit! The market continues holding up. Why?

Well, think about it. If strong hands were accumulating shares, would not their intention be best served by a nasty bout of selling whose simultaneous effect less negatively impacted issues leading the way higher — issues they had been accumulating for some time?

And if strong hands were accumulating shares, would they not be even more aggressively buying NASDAQ-listed issues, where history reveals average gains delivered during a bull market are superior?

Of course they would! Yet there has been none of this because strong hands are not accumulating shares. Instead, they are distributing their shares to suckers.

Simply imagine how difficult their task would be were there a nasty bout of selling ... particularly following 2008! That is why the disparities noted above have been of no consequence ... yet. Strong hands are distributing their shares, and every effort is being made to disguise this fact.


Fast Money
* * * * *

© 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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Friday, March 26, 2010

Past Proving Prologue


The following chart probably should have been included with yesterday's discussion of technical rationale raising suspicion the market might levitate over the next six months or so...


$SPX

So to avoid any confusion ... the Elliott wave count above applies the same A-B-C labels as ever before to the 3-3-5 "irregular flat" forming since November 2008 bottom (thus suggesting wave (B) is nearing its completion) ... whereas yesterday presented a framework for supposing that, only wave A of (B) is being formed by this 3-3-5 "irregular flat" ... and that wave B of (B) [down] forming a "zig zag" (a 5-3-5 corrective wave) might lie immediately ahead (which, itself, would be followed by wave C of (B)).

Now, you might recall recent comments highlighting an outlook published here in December 2008, wherein the Elliott Wave Principle's "rule of alternation" was thought guiding analysis away from supposing the then-anticipated, post-November 2008 counter-trend rally would be similar to the market's counter-trend behavior from January-May 2008. Turns out, however, price action from November '08 to present instead has taken an extraordinarily similar path.

Yet it appears that, although the path taken in each instance was remarkably similar, wave forms unfolding along the way were consistently different. This apparently is the full extent to which the Elliott Wave Principle's "rule of alternation" has applied, then, to the comparison of January-May 2008 counter-trend action versus the same unfolding since November 2008.

Indeed, it is in light of this manner in which "alternation" has been demonstrated that, furthered is the case supposing waves B of (B) [down] and C of (B) [up] might yet unfold before wave (C) of an A-B-C corrective wave down from October 2007 top delivers collapse. This is to suggest, then, that, the ground covered by waves 1 and 2 of wave C of (A) (unfolding from July-September 2008) similarly will be covered by waves B and C of (B).

As such, then, maybe my levitation thesis is weak. There might be a good bit more downside pressure over the next six months than was suggested yesterday. Still, in waiting for completion of five waves up from March '09 bottom ... then, in the market's initial move down from its yet-established top ... levitation might seem the order of the day.

The one thing I wanted to point out via the comparison of March-May 2008 versus March '09 - present is the similarity in relative [advancing] price action seen in relation to preceding [declining] price action. You see this every step of the way higher. And now, again, the S&P 500 is approaching the same relative price level as was reached when the index topped in May '08. Interesting.

Yet regarding the Elliott Wave Principle's guideline related to price channeling it appears there is a good bit more upside remaining before top finally is in ... at least as this consideration is presented on a logarithmically-scaled chart (such as above).

Not so, however, on an arithmetically-scaled chart...


$SPX

Here you see top to the channel containing five waves from March '09 bottom is getting rather close. Just a little more upside should do it.

Now, the top line to the above channel might need to be raised slightly in order to touch the top of wave 3 reached in early-August, 2009. Right now it touches the top of wave 1, thus revealing wave 5's minimal objective.

(Per the Elliott Wave Principle's channeling guideline, it is recommended that larger moves, percentage-wise, be considered on both arithmetically- and logarithmically-scaled charts.)


$SPX

One thing I wanted to point out regarding the advance from early-February bottom is something curious about those few days when volume was relatively elevated. Price action on these days are seen presenting the face of distribution. All things considered, appearances are that, but a few strong hands increasingly are driving trading.


Fast Money
* * * * *

© 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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Thursday, March 25, 2010

Following Top, A Levitation?


Considering the market's latest move higher in its ongoing counter-trend rally off March '09 bottom ... one can easily fathom a reasonable view supposing the next six months might not differ all that much from the last six months ... thereby further delaying the prospect of the market's anticipated collapse. This possibility notwithstanding, though, unmistakable signs of growing weakness likely will remain in evidence. For example, momentum, already long fading, probably will deteriorate further still.

Something of the nature of the present moment (in the grand scheme since October 2007 top) appears more surely confirmed as a consequence of the market's latest advance. It seems there remains enough underlying technical strength — even if this largely is being manifest via a general resistance to sell — to levitate major indexes a while longer.

In fact, you might say this probability is increased by improved McClellan Oscillator reads (both NYSE and NASDAQ) accompanying the recent advance...


NYSE McClellan
NASDAQ McClellan

Also bolstering the case for anticipating further levitation over weeks and months ahead is the fact that, the number of listed issues hitting new 52-week highs on both the NYSE and NASDAQ indeed expanded during the advance off early-February bottom (never mind for now the fact that, relative to all issues traded, the expansion in new 52-week highs is fairly pathetic, particularly given how far broad market averages have risen over the past year)...


$NYHL
$NAHL

So, there is a reasonable technical basis for supposing major market indexes might remain relatively buoyant for a time. Yet, that major indexes are trading near the proximity of overhead resistance suggests any additional challenge to my bearish position should be minimal.

Indeed, even if major indexes presently, at last, finally, and once and for all have hit, or shortly will hit, their ultimate top to the counter-trend rally off March '09 bottom, there is a good chance the market still could remain levitated, more or less trading sideways for the next six months or so.

As you know ... from November '08 to present an A-B-C corrective wave (specifically, a 3-3-5 "irregular flat") is seen unfolding. Up to now this corrective wave has been labeled wave (B) of an (A)-(B)-(C) corrective wave down from October 2007 top. That's old news.

Now picture this: what if this 3-3-5 corrective wave [up] from November '08 should mark but wave A of (B) (rather than wave (B) entirely)? Were this true, then wave B of (B) [down] should next unfold over coming months. Being [the now] wave A of (B) took the form of a 3-3-5 "irregular flat," wave B of (B) might likely alternate, and take the form of a 5-3-5 "zig zag."

As such, then, it might not be until the final five waves down finishing this prospective zig zag — that is, specifically, wave (c) of B of (B) — that any serious challenge to March '09 bottom might occur. Prior to this, a general levitation occurring over coming months — more or less resulting in sideways trading — could result in formation of wave (a) — five waves down — as well as wave (b) — three waves up — of this upcoming zig zag forming wave B of (B).

That may be a tough read, but it's worth the visualization. The point is evidence revealing an improved underlying technical condition coinciding with the market's advance off early-February bottom opens the possibility that, with major indexes trading in the midst of overhead resistance, the best that might result is further prolongation of equity's ongoing distribution into weak hands. The above visualization provides some perspective on how this might unfold.

Over the course of upcoming weeks we are likely to see a pullback from current levels once the present move higher off early-February bottom is complete. Remaining to be seen is whether this pullback will mark the first leg lower of a prospective zig zag down (a move slated to eventually challenge March '09 bottom) ... or whether following its conclusion a final move to nominal new high ground (post-March '09 bottom) will yet be in store. In either case a slide back to early-February lows (to the vicinity of respective 200-day moving averages) is thought likely once the present advance off those lows reverses.

Were ultimate top to the counter-trend rally off March '09 bottom to prove some weeks away still, consider this possibility in the context of the view presented recently in "Picture an Extended Period Topping." Bear in mind, too, this prospect still would be in keeping with an outlook toward continued levitation over the next six months or so.

Bottom line, comments here highlight how one might remain extraordinarily bearish (much as I have been, and still remain) without necessarily expecting imminent collapse. Today's analysis simply ventures to frame reasonable probabilities over coming months — how ever relatively subdued these may be — in the context of an ongoing distribution demonstrably continuing to this very moment, portending an eventual day of reckoning when collapse no longer can be postponed.


Fast Money
* * * * *

© 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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Wednesday, March 24, 2010

Variation on An Approaching Top


A variation on the Elliott wave count presented yesterday...


$NYA

This possibility simply affords more time for the current leg of the market's counter-trend rally off March '09 bottom to complete. With RSI just beginning to diverge and MACD only slowly starting to turn over, this likelihood seems to increase ... particularly given the trend since March '09 bottom, that is.


Fast Money
* * * * *

© 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.


There's an easy way to boost your investment discipline...

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Tuesday, March 23, 2010

New Wave Count, Same Dead Equity


Lest we forgot ... the name of the game for the past 30-40 years has been, and continues to be, "Inflate or Die" ... not "Deflate less and live for another day."

Keep this simple fact in mind (fixed, hovering above all the fog coming from trillions of dollars of still-worthless, formerly AAA-rated credit securities on the books of most every major banking institution across the globe) when any notable personality presently employed in the financial industry speaks the language of the post-WWII investment climate while making a contemporary case for maintaining a positive outlook toward the stock market, using analytical constructs (i.e. housing, employment, trade, etc.) whose relevancy ceased to exist when the securitization market collapsed in 2007. Truth is without the securitization market, any hope for a comeback in areas formerly benefiting from that largely unregulated, wild west of private sector credit creation had better get in line behind those who are waiting on the second coming of Jesus.

We are nearly two years removed from that market's collapse, and yet the word "declined" still remains a part of reporting on various measures of economic activity. The phrase "less than expected" is no consolation because, again, the name of the game is Inflate or DIE. Decline of any shape or form presents a big problem to the world that created the "just in time" inventory system for the sake of maximizing leverage on corporate cash flows. Surely, the "just in time" mindset is built into the global financial arrangement, too. The alphabet soup of bailout and backup facilities but offers all proof. Yet profound trouble lies in the simple fact liabilities at risk absolutely dwarf any power the Federal Reserve and the U.S. Treasury possesses to indefinitely maintain the illusion of solvency of the present, extraordinarily vulnerable arrangement. It is only a matter of time before a still highly unstable situation becomes further unglued.


$SPX

In the spirit of recent revelations demonstrating stocks are being distributed ... and in recognition of the market's extended move higher off early-February bottom ... let's consider the possibility five waves up (rather than three) are unfolding off that bottom. Volume bumps on relatively flat-to-down days during the formation of the fifth wave — these following March 5th's short squeeze — "make sense" in the context of the past year's ongoing distribution.

Thus, the above Elliott wave count once again suggests the counter-trend rally unfolding since March '09 bottom, at last, could be nearing its end.


$SPX

This prospectively is how the five waves of wave C of (B) might be seen subdividing. There is nothing at all wrong with the above view. In fact, everything conforms quite nicely to Elliott Wave Principle rules and guidelines.

Wave 4 alternates in complexity with wave 2 ... while its upward bias is seen as something of a tendency of fourth waves over the past 25 years. Waves 3 and 5 appear to be tending toward equality, thus making wave 1 the so-called "extended" wave within this five wave sequence.

Contrasting volume registered during the 1st, 3rd and 5th waves, we plainly see the hallmarks of a dying capacity to distribute dead equity. Both RSI and MACD help confirm the above wave count, too, while the latter most conclusively reveals that, momentum is fading with each lurch higher.

Yet there is MACD once again on the positive side of its balance. So, remaining to be seen is just what further contrived action might develop over the next few months, as the rollover to eventual doom begins. My foremost suspicion is that an extended period of topping still is likely to develop, much as has been mentioned here before. The only thing different resulting from the view presented today — were it, indeed, correct — is expectation that ultimate top might be imminent, rather than delayed a few months.


Fast Money
* * * * *

© 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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Monday, March 22, 2010

More Same Signs of Distribution


You might recall a couple weeks back — early in March — when, more or less out of the blue, OEX call open interest had jumped ahead of put open interest for the first time in months, and the thought was that, short equity positions were being hedged, signaling an approaching end to the market's rally off early-February bottom and an imminent resumption of selling that began mid-January.

Well, obviously, this is not what happened. So, what are we to make of this seeming head fake, then?

How about considering it but more of the same old, same old ... such as principally has been driving trading over the entire course of the market's counter-trend rally off March '09 bottom. Do you remember the drill? Sell calls, squeeze shorts, sell stocks to call buyers exercising their right. Lather, rinse, repeat. Was early-March but another instance of this same exercise?


$SPX

It appears March 5th marked phase II (squeeze shorts). Volume is the give-away. And now, phase III — distribution's work-in-progress — appears near its end, judging by RSI and MACD.

Yet for the moment let's stay on track with the message from the OEX options pit, because with the March contract now off the board two things of note stand out...

First, nothing yet suggests an imminent repeat of the same exercise in distribution as has recently transpired. The April contract begins with OEX call and put open interest virtually even.

Which leads to a second, more critical, observation...

Were those interests who have been taking on new long equity positions among strong hands, their positions would be accordingly hedged, and reveal strength over the opposite side of the trade with dominating numbers. In other words, put option open interest would considerably exceed that on the call side. This is not the case here (nor has it ever been at any time over the past year when a new OEX contract front month began).

So, quite simply, we have further evidence stocks continue to be distributed into weak hands. Rah rah all they like about supposed "resiliency," all signs continue suggesting today's longs are being set up for tomorrow's slaughter.


Fast Money
* * * * *

© 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.


There's an easy way to boost your investment discipline...

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Friday, March 19, 2010

Near-Term Resistance Amidst Distribution


Also presently trading in the vicinity of near-term resistance is the broad-based NYSE Composite Index...


$NYA

And still — yet as ever since March '09 bottom — the underlying substance of buying supporting the Composite Index's advance presents a mystery...


$NYAD cumulative

If the majority of NYSE-listed issues on balance are rising in a fashion suggesting a great deal of long interest, then why is the Composite Index lagging so badly?

ANSWER: the majority of NYSE-listed issues are being distributed to suckers ... and gains thus far registered are the best these weak hands can deliver. Same as it ever was since March '09 bottom.

Yet over the past six months in particular, long side interest, no less pervasive by any means, appears to have all the financial power (and likely mindset, too) of a six-year-old in a candy store. Their purchases just are not moving the register. All the more they appear only to be eating dead equity ... willingly, of course, as suckers would.

So, all the more, still, is so-called "near-term resistance" appearing formidable, pure and simple.


Fast Money
* * * * *

© 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.


There's an easy way to boost your investment discipline...

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Thursday, March 18, 2010

A Trip Down Memory Lane to the Home of Near-Term Resistance


Let's take a trip down memory lane. It was December 6, 2008 and the talk was of near-term resistance...
What really stands out is the volume of shares traded during the week in mid-September '08 when Lehman Brothers failed. Well over 20 billion shares changed hands. It's a good bet a vast majority are underwater. Many who bought stocks that week are showing big losses.

As you can imagine, then, more than a few longs probably are quite nervous about financial conditions remaining extraordinarily tenuous. Surely, many holders will be happy to get out even. In fact, this probably is the safest bet in history!

Thus, the S&P 100 could see significant resistance as it rises toward the range of 520-550.

Let's have a look...


$OEX

"Near-term resistance" ... here we be.

Now, imagine, presently, an imminent pullback to the 200-day moving average ... then a rather less pronounced advance right back to present levels, taking, say, 2-3 months (rather than the month-and-a half that has transpired since early-February bottom).

Superimpose this image on the chart above and observe how the A-B-C corrective wave off November '08 bottom would simply extend. You get the picture of how time, alone, has been bought as a consequence of the present lift to new high ground, post-March '09 bottom. And, furthermore, you see, too, that this area of well-substantiated resistance is likely to be proven.

Returning to my December 6, 2008 view...
... We should not assume any upcoming counter-trend rally will unfold just like during the January - May '08 period. Indeed, the Elliott Wave Principle's "Rule of Alternation" advises against this.

Bzzzz. Wrong. The counter-trend rally off November '08 bottom has unfolded very much like that of the January-May '08 period! In fact, the like-from-like similarity is uncanny.

Which brings me to two concluding points...
  1. Obviously, my stated outlook often proves incorrect. However, I make no apologies here. Evaluating a finite array of variables so to assess finite Elliott Wave-related possibilities (occasionally throwing in fitting, colorful reads on current events), I believe well-served is your effort to become better informed, so you might more confidently develop your own, certain judgments (whether these agree with mine or not), and as well better understand how critical, technical elements associated with the trading of common stocks might breed such patience as is likely to deliver handsome rewards.

  2. All the more, then — particularly considering the post-March '09 bottom counter-trend rally's marked similarity to that prior, January-May '08 period — does the prospect of an extended period topping, such as I have been highlighting over the past week or so, appear a rather reasonable probability. Presently, consider the moment being like early-May '08, with a pullback and then a final lift to the vicinity of current levels yet in store — a move that, this time around, could evolve over a period of a few months.

Fast Money
* * * * *

© 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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Wednesday, March 17, 2010

Suckers Finally Increase Appetite for Dead Equity


Given the market's extended advance since early-February, it seems reasonable to suspect that, the fifth and final wave up from March '09 bottom is unfolding. Indeed, a five-wave channel containing the advance from early-February could be thought forming.

However I remain inclined to suppose the current leg higher is but part of the corrective wave (i.e. wave 4) preceding the fifth and final wave up from March '09 bottom...


$SPX

Volume accompanying the advance since early-February better supports the a-b-c wave count you see above, rather than a prospective five waves up contained within the channel drawn. The first sign of any notable volume increase came during formation of the third wave of wave c, as would be expected.

This week, then, appears to have brought the fifth wave of wave c, which move likely will complete by the end of the week at the latest.

Supporting the view that, more time to offload dead equity has been bought with the advance off early-February bottom is an increase in the number of listed issues on both the NYSE and NASDAQ joining major indexes at new 52-week highs...


$NYHL
$NAHL

It seems last year's extraordinary demonstration of the art of the short squeeze is finally paying off. An expanding number of issues on both exchanges are at last registering new 52-week highs.

Yet look which exchange, under the covers, still is leading the charge higher. The NYSE? It appears animal spirits necessary to sustain the advance off March '09 bottom, making that low like those registered in 1932 and 1974, remain absent.

Likewise, let's not forget that a record number of issues were registering new 52-week lows during the latter half of 2008. Then, following a near doubling of both the NYSE and NASDAQ Composite indexes off March '09 bottom we find a relatively narrow band of listed issues registering new 52-week highs? Such a state of things below the surface reveals that, by no stretch of the imagination has all returned to normal. Indeed, evidence indicating "something's not right" is, in fact, well-provided here. This perspective is bolstered all the more seeing how few issues (on both exchanges) continued registering new 52-week highs when the market was under pressure late-January, early-February. Were there in fact any substantive leadership, no slight, market-wide sell-off would have so completely subdued their collective, continued advance into new high ground.

Still, there is no denying strong hands finally have that greater abundance of suckers among us right where they want them. Conditions conducive to prolonging distribution of a decade-long (and running) transfer of shares affecting an ever-increasing number of listed issues appear to be in place. That some further, significant upside surprise is not threatening should become rather evident in but a matter of days.


Fast Money
* * * * *

© 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.


There's an easy way to boost your investment discipline...

Get Real-Time Trade Notification!

Tuesday, March 16, 2010

Keep Your Eye on the Ball


Apparently, the "bit more consolidation" [of recent days' gains] thought possible yesterday was already accomplished before today's trading began. So, the final leg of what still remains an a-b-c corrective wave up from early-February bottom moved closer to completing today.

Coming up, er uh, down ... a return to respective 200-day moving averages. Following that, a slow grind higher, right back to present levels. This is the essence of an extended period topping.

Such a likelihood stands to reason it seems. So much has been done to create conditions affording opportunity for artificial life support's rationalization (albeit via much lying), such as, relatively speaking, makes equity attractive in a yield hungry world.

Yet were anything good and lasting to come of this we would see common stocks being accumulated. Instead, we are seeing the very opposite. Stocks are being distributed. The evidence is plain. Every piece, taken together, presents distribution's dynamic.

This case more or less has been made here for months on end now. The song remains the same, still. That top to the rally off March '09 bottom is yet again defied is no basis for altering my outlook, particularly when the underlying dynamic remains entirely unchanged.

In fact, if you really think about it, a prolonged distribution lends considerable weight to the view that, stocks have a long way down yet to go.


$BPNYA
$BPCOMPQ

Now you can be sure the only thing "magical" circling around U.S. stocks is credulity. Here we are going on six months with still fewer listed issues bullishly configured contributing to the market's general buoyancy ... and yet given where we've been over the past few years — let alone where we've come from in just one — some greater measure of fear (leading to a pickup in selling) still is nowhere to be found?

Among the majority there remains far greater complacency lending reason to hold, rather than sell. This, alone, the new trip to post-March '09 high ground yet again readily reveals.

So, quite evidently, groundwork laid by some far stronger minority has produced its bounty of fruit but begging harvest. Mission accomplished. Yet, too, among these strong hands real power lives, but begging some new swindle affecting realignment. That's the ball to watch.


Fast Money
* * * * *

© 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.


There's an easy way to boost your investment discipline...

Get Real-Time Trade Notification!

Monday, March 15, 2010

Picture an Extended Period Topping


Were an extended period of topping ahead, the range in which indexes move over the next few months might more or less have been established during the first ten weeks of 2010...


$SPX

The projection above about summarizes the view put forward here over the past week or so. The lift off early-February bottom presently is thought to have bought time ... and that alone. Of five waves forming wave C off March '09 bottom, the fourth wave (beginning early-January 2010) is seen unfolding right now.


SPX 5-min

The present leg up (off early-February bottom) appears still to have life. A bit more sideways consolidation, then one final lift higher should about do it.

Technically, under the covers, there are divergences everywhere. Some continue confirming a still weakening, counter-trend rally (off March '09 bottom) and others reveal the present leg higher is nearing its end.


Fast Money
* * * * *

© 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.


There's an easy way to boost your investment discipline...

Get Real-Time Trade Notification!