Well, the stock market got the precise muscular function in its legs I predicted. So, that's one tick for the coming stock market melt-up thesis. Again, I would question how soon might develop the stock market's anticipated melt-up were this week's May options expiration a repeat of the [uncharacteristic] January '08 heist at Fort Knox.
Now, per the pending mini-collapse preceding the coming melt-up, what was missing today was the fade. So, what up with that?
Here's what I think. It just might be classic "Pay no attention to that man behind the curtain!" And if that's the case the stock market should readily confirm my immediate outlook for a sharp, distressing smack.
The lines you see drawn have some meaning to this Elliott Wave Guy (unlike some I have presented before).
No ... RSI did not extend above its high last Tuesday (5.6.08) ... but, in fact, that's okay. The price-RSI picture you see is affirmation of the declining stock market trend I believe has a growing probability of unfolding over the days and weeks straight ahead.
Note how the S&P 100 and its RSI are in sync. Thus, RSI is confirming the S&P 100's decline. Furthermore, that today's RSI reading did NOT exceed last Tuesday's (5.6.08) high is, indeed, what I might better have hoped for. This simply highlights the stock market's underlying weakness. It reflects a condition conducive to a mini-collapse...
Just as strength begets strength, weakness is likened unto itself, too.
Now, here's the thing. I simply must believe the stock market is at a critical inflection point if my outlook for an imminent slap is correct. This, you see, is the face of low-risk opportunity. More on this below...
I have to tell you. If the NASDAQ Composite trades above its high set Friday May 2, 2008, I might have to seriously question how imminent is the stock market's mini-collapse. Believe it or not.
I will also tell you, though, RSI performance Friday (5.9.08) and today suggests the NASDAQ Composite's advance is near completion, if not already over. So, considering how important I feel it is (at least tonight) the NAS stay below its post-March 17, 2008 high set six days ago, this subtle, confirming RSI condition is comforting. It lends a measure of confidence in my conviction the index could imminently turn over as, indeed, I feel it must.
Witness the NASDAQ Composite's technical breakdown developing over the month of May. Start with the three largest advancing days, today being the third. You see a slightly rising trend — both via intra-day highs and via each day's close.
Yet, RSI is declining. Volume is weakening (although this is not necessarily a confirming element, it is certainly worth noting). The MACD oscillator is at the brink of a cross-over, and turning decidedly lower.
Also take a look at the NASDAQ Composite's McClellan Oscillator. It, too, is fading ... and peaking at that, as well.
Simply from the perspective of how things are seen breaking down, yet still holding up, you can picture the great and powerful "Oz" breathing fire and shrieking, "Pay no attention to that man behind the curtain!"
At least that's what I really must suspect is before our eyes right now.
Thus, here is a little wisdom born of experience. It is times like these when you truly have a low-risk opportunity for initiating an options trade. That's because the stock market is recognized as being at a point where it MUST immediately move in favor of your position. If it does not, you know right away your position is wrong. Then, you sell your position, without hesitation, so you might best serve investment priority #1: preserve your risk capital.
I suspect there might be a little more shouting from the great and powerful "Oz" before a really good opening play presents itself. By "a little" I am thinking just one day more.
At this "make or break" moment, you should gather the fuller breadth of substance I intend when I say, "Patience pays."
I am feeling like William Wallace when the English cavalry was charging his Scottish line. Their horses drawing near, he is heartbeats aways from hollering, "NOW!" ... The only difference is I am not so wide-eyed and worried looking.
But tomorrow I cannot say...
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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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