Hyper-Inflationary Alchemists Turn BSC Collapse Into Melt-Up Fuel ~ The Risk Averse Alert

Thursday, March 20, 2008

Hyper-Inflationary Alchemists Turn BSC Collapse Into Melt-Up Fuel

Quite an impressive rally this afternoon ... call it an "all's clear" mini melt-up ... as this seems what many wish to think. Oddly enough, though, today's view would lower the ultimate near-term objective we have been projecting here (targeting the 630-645 area).

OEX 5-min
Today's advance appears to leave the S&P 100 in a situation similar to late last Thursday (3/13). Coincidentally, last Friday (3/14) opened with the thud of the Bear Stearns take down. We go into a long weekend with no shortage of financial institutions reported at risk of collapsing.

Remarks in yesterday's Risk Averse Alert detailing RSI disparities could be further elaborated following today's reversal of Wednesday's stock market sell-off. Although the S&P 100's recovery fell just shy of yesterday's high, RSI extended higher than any time this week. This stands in contrast with what occurred last Thursday (3/13).

Does this demonstrate an added measure of underlying strength? If so, any pending sell-off early next week might not be as severe, or as steep, as last Friday (3/14).

Then again, who knows? Anticipated selling early next week could be more severe than presently is expected.

One thing striking about RSI reaching a new high for the week today is how the S&P 100 was not rising nearly as sharply as it had on Monday and Tuesday. So, "fear and doubt about the staying power of this week's advance" positively noted yesterday might have evaporated today.

Thus, if present RSI disparity ... relative to last Thursday (3/13) ... is indicative of complacency, look out. This possibility is worth considering particularly since the Risk Averse Alert is projecting the stock market's multi-month decline is not yet over. A "surprise" decline early next week might be a taste of things still to come.

There's little doubt the S&P 100 is basing / correcting / consolidating — whatever you wish to call it. This is as much the case over the past several weeks as it has been over the past ten months. Recent range-bound trading likely will continue for some time to come. Just how so is discussed below...

One outcome the Risk Averse Alert has been anticipating is RSI rising above its high in December. This is a first prerequisite to any bottom forming in the stock market's multi-month decline.

Let's look at how this might form...

Observe the period from the S&P 100's January low to its late February's peak around 640. Do you see how RSI trended higher while peaks in the S&P 100 were trending lower? We might be looking forward to much the same result from here.

This is why today's remarks began by suggesting the Risk Averse Alert's outlook to date might need refining. The oft cited objective of the S&P 100's counter-trend rally might need to be lowered.

Thus, it is possible the S&P 100 might be lucky to rise above 630 — the low end of this previously stated objective — before the stock market embarks on the last leg of its multi-month decline and finally bottoms.

This Is Not Your Father's Banking System
Charlie Rose Interview With Paul Volker (3/19/08)

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