Ready to Rise to the Top on a Market Melt-Up? ~ The Risk Averse Alert

Wednesday, April 23, 2008

Ready to Rise to the Top on a Market Melt-Up?

Yesterday, I said "The retest [of the March 17, 2008 low] might be at hand." And I claimed, "There's much on the [3-year chart of the S&P 100] suggesting this ... from an Elliott Wave Guy's perspective."

Well, there's also a view suggesting "the S&P 100 could, right now, be in a position similar to September '07." I mentioned this yesterday, too. Today, I'd like to take a closer look at this possibility.


Both RSI and MACD continue their upward biases ... and both are in positions demonstrating buy-side strength. The same was occurring in September '07 ... after the S&P 100 had bounced off its August low. Just like then (after the initial bounce), the S&P 100 presently is trading more or less sideways with an upward bias ... and with technicals confirming every step of the way higher.

What's more, you don't see any sort of divergences (in RSI and MACD) indicating the S&P 100 is about to turn lower.

So, yes, an advance to the 200 day moving average might be in store.

A bit more encouraging, too, is volume. It being notably elevated than was the case last September '07 supports the case, I believe, suggesting a decided advance might proceed from here.

Who knows, March 17, 2008 might even be marking the start of the stock market's melt-up.

(Make up your mind Elliott Wave Guy! Yes, but in my defense is the fact I have been anticipating a re-test of the March 17, 2008 bottom in the context of it being "only" a 40% probability.)

What say me, then, supporting the possibility the stock market is about to rocket higher? Well, oddly, not one of several benchmark stock indexes has risen beyond last Friday's peak (4.18.08). You'd think this suggests weakness, but in the context of things that make the present moment appear similar to last September '07, it could indicate momentum established last week is being sustained and setting to continue.

OEX 5-min

NYSE 5-min

NASDAQ 5-min

So, indexes are holding up following last week's rather impressive [and surprising] advance. I am rapidly coming to suppose the stock market's multi-month decline might be over. So, let's see how things unfold over the next day or two.

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Bernie said...

Just wanted to let you know that I enjoy your blog very much, its very informative.

Bernie said...

Is there a specific "trigger" you are waiting to see in the upcoming months before you feel confident in calling a move and issuing an alert?

TC said...

What I am principally looking for right now is some rock-solid evidence the stock market is about to melt up. This is in preparation for a play wherein the possibility of parlaying an initial $500 stake (or something in that vicinity) into solid five figures appears a low-risk opportunity ... with further possibility of pressing this into six figures or more. How quickly depends on how rapidly things unfold. Start to finish, you could go from $500 to 6-figures in a matter of weeks.

As you know, I'm 60-40 on March 17, 2008 even marking the bottom of the stock market's multi-month decline. I am, however, rather confident the stock market still has a good bit further to rise (indeed, melt up) during the months ahead ... once bottom assuredly has been hit ... if it hasn't been already.

I am purposely trying to limit "quick hit" opportunities. It is far more profitable to trade less ... only when relative certainty is high. You don't need me to tell you "certainty" is not always possible.

Per any specific "trigger" ... I try initiating positions at points where the forecast presents an opportunity to make a quick decision to bail out. So, if I am initiating a long position, the point at which I would close that position and cut losses is not far below the point at which the OEX stood when I bought my Call. In other words, when I initiate a position, I expect the OEX to IMMEDIATELY move in favor of my position. If it does not, then I bail out (doing this for the sake of preserving capital).

Stick around, Bernie. Things could get interesting these next few years. Opportunities to strike big ... and do this over a period of a few short weeks ... probably will be many.

In the interim you have power here to most effectively manage your retirement account investments. Since the stock market probably is about to melt up, why not be 100% long stocks? History shows the stock market offers superior returns to all other asset classes. So, why ever bother with bonds? The better way to manage a retirement account, I believe, is embrace this history (stocks v. other asset classes) and get to know how opportunity and risk present themselves in the stock market. When there's greater opportunity than risk, you're all in, long stocks. When there's greater risk than opportunity, you're all out, your money safely sheltered in a money market fund. It's a simple strategy, well-founded in history, and it can be effective for one's entire lifetime. What's more, this probably is the best (and only) way to maintain the purchasing power of one's retirement savings in the face of inflation.