Crystal Ball Says Same Melt-Up, Different Day ~ The Risk Averse Alert

Friday, March 07, 2008

Crystal Ball Says Same Melt-Up, Different Day

Yesterday's post ended with a comment straight from the old crystal ball...

Per the Risk Averse Alert projecting a stock market advance unfolding sometime during the coming 5-8 week time frame, there's just one proviso. 594.78 is the S&P 100's January '08 intra-day low. This cannot be violated and you should be aware of that.

In a nutshell, then, the outlook has changed. Today's intra-day low of 592.08 removes the possibility the stock market is days away from rocketing toward highs reached in 2007. Chances are more time will pass before a solid, sustained advance develops.

There's little doubt, though, the stock market is near its ultimate bottom. Now is not the time to panic. An advance into higher ground than was reached in 2007 should commence once a bottom is in. This will just take more time to form.

Take a look at the Relative Strength Index (RSI) in the above chart of the S&P 100 index. If the stock market turns higher in the next couple days (and it probably will), expect RSI to rise above high-end readings registered last December. The S&P 100 should rise no higher than the 645-650 range over the interim. Following this, we'll see another move back down, bottoming in the area where the S&P 100 stands right now.

The anticipated longer-term RSI form should look something like what was registered over the past seven days. Take a look at the chart below. Pay particular attention to how peak RSI early on Wednesday exceeded peak RSI the prior Thursday ... this, while the S&P 100 was declining. Also notice how trough RSI following Wednesday's peak has not exceeded trough RSI registered early last Friday... again, while the S&P 100 has been declining. The S&P 100 is putting in a short-term bottom.

OEX 5-min
Chance are Monday will be a relatively flat day. If so, then things might well be setting up for a quick burst higher to the 610 - 620 range. This could be worthy of a quick play. Look for a strained move lower to the 590 area, while RSI continues its improvement following today's gap open lower. Should this occur, the Risk Averse Alert might recommend getting long the S&P 100 for a fast, 1-2 day play...

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© 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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