Tony Nelson Takes Back Wall Street Journal Jeannie ~ The Risk Averse Alert

Monday, March 24, 2008

Tony Nelson Takes Back Wall Street Journal Jeannie

Last week I referenced the I Dream of Jeannie episode in which Jeannie blinks in the next day's newspaper, and I claimed the Risk Averse Alert was just like receiving the Wall Street Journal a day early. Two straight weeks calling just about every twist and turn ... had gone quite well.

I indicated this is not necessarily what I intended here. However, sometimes the need to forecast something specific is just too great. Trouble is this kind of thing can be easily misconstrued as an attempt to present actionable advice meant to facilitate profitable day trading. This is not at all what I am striving for!

Truth is it probably is better sometimes to just let the minutia work itself out, and keep an eye on generalities whose passing solidifies an anticipated view toward the stock market and confirms approaching prospects for profiting with an S&P 100 stock index options position. This is how, today, I judge with hindsight last Thursday's commentary.

What really needs stressing simply is the expected effect the S&P 100 tracing out its much anticipated counter-trend rally will have on intermediate-term RSI. We are (as we have been) specifically looking for RSI to rise above its high last December, while the S&P 100 remains stuck within the range it has traded over the past two months. Just how this specifically develops is not a big concern.

This pending RSI divergence is prerequisite to the stock market embarking on the final leg of its multi-month decline and registering a bottom from which it might begin its anticipated melt-up.

(Whether, in fact, the stock market will immediately launch into melt-up mode, or will continue trading sideways ... bounded by the range between the pending bottom and last October's highs ... remains to be seen. Either way, sometime during the months ahead the stock market is expected to spectacularly melt up.)

Today's trading confirms the 630-645 range is where the S&P 100's current counter-trend rally likely will peak. At this point there is no reason to lower this objective as was suggested last Thursday.

OEX 5-min
Now, the S&P 100 might likely rise further and extend today's advance, so then what (assuming the intermediate-term RSI divergence we are looking for is in place ... which, right now, is not yet the case)?

Will the final leg of the stock market's multi-month decline commence immediately or will something else develop whose net result furthers the divergence of the S&P 100's intermediate-term RSI relative to last December?

We will just have to wait and see...

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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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