Wall Street Like the Night Titanic Sunk ~ The Risk Averse Alert

Friday, April 25, 2008

Wall Street Like the Night Titanic Sunk

It's like the final day's sail on the most magnificent ship in the world ... full steaming ahead on a calm, still sea ... in iceberg-filled waters. An image of the night the Titanic met its tragic doom is perfectly suited here. Not to recall the ship's sinking. Rather, the prevailing psychology prior to it striking an iceberg.

Let me put it this way...

If the stock market trips, the drop to bottom should be quick. Indeed, circumstance supports the likelihood of a swift reversal of [near-term] fortunes. This despite appearances the market looks like it wants to go still higher...

OEX 5-min

The heretofore 60% probability I have given to the March 17, 2008 low holding up is, for the record, being lowered to 30%. Given a wealth of evidence, the stock market seems far more likely to visit the edge of the precipice I revealed last weekend.

First, take into account indications I've presented these past couple days suggesting the stock market might be near a turning point. Let's see, I brought out the Bullish Percent and the CBOE Put/Call Ratio (and peppers and sardines for Pantangele). Assuming the stock market's multi-month quandary has not ended — and here, I am, because, indeed, I must — you get the idea a turning point is near when putting these (and other) indicators to a comparative analysis.

Speaking of the Put/Call Ratio... On the sentiment front, I should add something related ... for your edification: pros principally use OEX options to hedge equity positions. They're buying insurance.

So, when Call open interest is rising faster than Put open interest, pros are hedging short equity positions; they're bearish. Oddly, that's what they've been doing this past week ... despite all appearances the stock market wants to move higher.


The volume picture from the March 17, 2008 low proves itself the exception to the rule there's no sense beating a dead horse. I've been doing it for a while. Still, the index moves higher, yes, just as it wants to ... but each step of the way there's less fear displayed ... fewer shares are being put up for sale ... demonstrating complacency ... perfectly poised for a SMACK.

Finally, go back to the NYSE McClellan chart again...

During January's dive the NYSE Composite fell below the low it set last August '07. Yet, neither the NYSE McClellan Oscillator nor the NYSE Summation Index fell as far as they had at that time.

This has been perplexing. Up until now I have been assuming this divergence indicated increased underlying strength supportive of a bottom (which I gave a 60% probability). And in some ways still, this divergence continues representing an element of strength. However, the evidence is mounting it will not be enough to cement the March 17, 2008 low as "bottom."

So, indications a turning point is near ... shown in stuff I have noted the past couple days ... and stuff I have covered for several weeks questioning the viability of the March 17th low ... suggests these NYSE McClellan divergences might more accurately be indicating a bottom is near, even though it is not yet in.

The Elliott Wave Guy lives. And all things, taken together, suggest a relatively frightful fall will occur before "the" bottom is here. I am by no means going out on a limb giving this likelihood a 70% probability. I think it's going to rain.

That is for the record.

After the storm, "the" bottom probably will be in. Then, at long last, it will be all heads up for a melt-up. Yes, that's the ticket. It fits perfectly in the eyes of an Elliott Wave Guy. You don't need to understand because I'm not sharing. You just need to see. And that is the plan I have here.

So, here's the deal. Chances are a desirable pick-up in volatility soon will bring pronounced moves in the stock market. First, lower, and probably hard ... then, sharply higher ... dead ahead.

But before it all goes down, we will like seeing further divergences making it really easy to know when to say when.

Are you really ready to make some serious money?

The time is nearly at hand.

Titanic Will Founder

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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.

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Bernie said...

Hi TC!

Would you recommend some good books for learning the Elliot Wave Principal.



TC said...

Elliott Wave Principle - Key to Market Behavior, by A.J. Frost and Robert R. Prechter, Jr.

This is the 10th edition.

Mine is the 6th. I signed my full name on the opening page in October, 1986. I have a "Far Side" comic saved there, too.

The cartoon is captioned "Cattle humor." Two cowboys are driving a herd of cattle ... and on the back of one of the cowboys is a sign that says, "Trample me."

Perfect Elliott Wave humor.

Obviously there have been refinements to newer editions of the Elliott Wave Principle. Whenever I see a chart from Elliott Wave International, waves often are labeled with unfamiliar notations, particularly during corrective periods.

My guess is these new formulations are representations of newly recognized Fibonacci relationships.

None of this new stuff could do anything more for me than what the 6th edition has done. In fact, I have a strong suspicion newer editions are more dense with abstractions. The basics I got leaves my mind adequately open to the art of assessing possibilities, particularly framing these in the framework of the on-going battle for the life of the American Republic. I am sure we agree this life most certainly has a financial component.

I digress...

More often than not, it seems, I see a forecast from the editors at Elliott Wave International and I do not agree with their analysis. I often find them too inflexible in their longer-term views. I just came across EWI's recent analysis in an article at Minyanville. It's a good thread. There's one very vocal doubter.

Here's something you might like knowing. I was bearish January, 2000. I forecast a 2-3 year bear market taking major indexes back to their 1998 lows. All Elliott Wave.

Fast forward February, 2003... I turned bullish. All Elliott Wave.

Dow 3600? All Elliott Wave.

A pending bottom ... down hard ... and a melt-up? Again, all Elliott Wave. But here, we get more into the art of perception about the times we live in. And this, too, is where some simple technical analysis comes in handy for assessing the state of greed and fear.

Per that state, what might be said is enough to provide a foundation for executing low-risk trades. I see no need to go any deeper than that. Yet, the folks at EWI do. Some things I have found a curiosity. More I have found lacking Life Spirit.

Still we all perceive just why King Solomon said: there is nothing new under the sun...

Bernie said...

Thanks TC for the book recommendation.

Am I correct in understanding that where the two trend lines converge on the NYSE Index chart may be the possible turning point?

TC said...

You are correct, sir.