To Sir Elliott, With Love ~ The Risk Averse Alert

Friday, May 16, 2008

To Sir Elliott, With Love

If ever there were a time when a reversal of fortunes could come sweeping down upon the stock market like an avalanche, that time is now. The moment of truth, surely, has arrived. There simply can be no further delay.

I have my reasons for believing this. However, I have no great need to explain ... at least not beyond insightful allusions bringing an Elliott Wave Guy to conclude, "Hey, something is just not right."

It looks like a 20% (or more) bloodbath is about to make Larry Kudlow and his Tory minion stark, raving mad. (You might think this not any more possible than is already true. However it was I who said, "Just as strength begets strength, weakness is likened unto itself, too." The happy horse hockey these guys call analytical rigor is the very stuff insanity is made of. The thrashing Mr. Market appears on the verge of delivering could, along with share prices, just throw this crew right over the edge. And if not now, then certainly over the next few years. ... Part I of blatantly unrelated editorial commentary over; part II, featuring the ongoing drama between the gangster element disguised as respectable politicians pitted against a Congress which just this past week actually developed a backbone still to come.)

So, what is it I see that is just not right?

Let me take something I wrote on May 1, 2008 in a post titled, "Surviving and Thriving in a Perfect Stock Market Storm," (a title so perfectly fitting to my message today) and begin developing perspective defending my present outlook.

There I remarked, "[W]hen I look at the NYSE Composite McClellan Oscillator since its January '08 bottom, I see trouble ahead. How deep the doubt going into the March 17, 2008 retest! How shallow is confidence right now!"

My conviction toward this latter conclusion has been but raised by the oscillator's coincident performance over the past couple weeks as the NYSE Composite has continued its [strained] advance.

But there's something more here I want to show you.

(Regrettably, there's no easy way to import the chart of the NYSE McClellan Oscillator here. The best I can do is give you the link.)

First (and this is only a minor point), when I claimed "How deep the doubt going into the March 17, 2008 retest," this was only to note the McClellan Oscillator's relatively weaker performance from its high early February '08 through its March '08 low compared to its performance from its high early December '07 through its January '08 low.

Here's the thing. The stock market took a rather steep dive over this latter period in comparison to the former. Despite the NYSE Composite's well contained and hardly notable decline early February through March 17, 2008, the McClellan Oscillator revealed a considerable measure of underlying weakness not seen while the stock market was getting crushed from December '07 through January '08. This simply raises a red flag. All the more so because the underlying weakness masked during the NYSE's February '08 - March '08 retest of its January '08 low has evidently persisted. This fact, I believe, is more or less undeniable.

Just look how the NYSE McClellan Oscillator has failed to exceed its early February '08 high since the stock market bottomed on March 17, 2008. This, despite the NYSE Composite trading considerably above both peaks it reached during February '08.

Also observe how peaks in the NYSE McClellan Oscillator have been diminishing over the past month or so as the NYSE Composite's advance has persisted. Again, the red flag raised going into the March 17, 2008 retest simply has continued to wave like the American flag planted by the U.S. Marines atop Mt. Suribachi.

As I said, though, this is only a minor point I wish to make here. There's something "just not right" about the stock market's decline from its peak last October '07. And any an competent Elliott Wave Guy (or Gal ... hi Mary) should get it.

If the stock market's decline from October '07 through March '08 is directly related to its decline from July '07 through August '07, then how is it both the McClellan Oscillator and the Summation Index did not perform markedly worse as the NYSE Composite fell deeper during the more recent period than it had during the former?

I will not go into why it should have. I do, however, strongly suppose the picture that's presently "just not right" is about to turn "just right," as is fitting with everything about Baby Bear in the land of Elliott.

The NYSE Composite's McClellan Oscillator is not alone in painting this picture that's "just not right"...


Do you see how the differential between new 52-week highs and lows reached on the NYSE during the stock market's decline from December '07 through March '08 was not as negative as was reached during the July '07 through August '07 period?

Again, in the eyes of an Elliott Wave Guy this is just not right. There must still be more downside remaining in the stock market ... and it should be the kind of thing whose net effect results in an underlying technical picture that fits the performance recorded by major stock indexes, such as the NYSE Composite.


Why, it was just yesterday in "Another Not-So-Kudlow-esque Chart Fest" I told you, "I have been aware of NASDAQ's leadership for a long time now," and revealed this is something that "works in both directions."

So, today you see this is not only true at the surface (i.e. via the performance of the NASDAQ Composite index versus the NYSE), it also is true under the covers ... where the underlying technical condition of both the NASDAQ and the NYSE are revealed.

I'm referring to the fact the NASDAQ Composite's high-low differential appears as it should. During its decline into the January '08 bottom, the differential widened from the level it registered last August '07. This is unlike the NYSE Composite. Thus, we might conclude the NASDAQ Composite is demonstrating negative leadership, although disguised at that.

I thought this was both interesting and relevant. In the grand scheme of the stock market's struggle over the past year, the NASDAQ's leadership seen from this perspective ... visible only "under the covers" ... seems to be confirming all is not yet well with Mr. Market.

And since we are here, stirring beneath the covers, and there's something not feeling quite right, it might be a good time to wake up and take a closer look...

Is it Just Overbought? Or is it Ripe for Collapse

Oh no! Something here ... under the covers ... really does not feel right at all!

Ahhhh! Ahhhh! Ahhhh! Khartoum ... Khartoum.

Sorry. I just had to do that.




Now, from where you see marked "You Are Here" to the post-crash, intra-day low, we have a decline of approximately 35% ... occurring over just a handful of days. This, I believe, is much like what might, indeed, be imminently in store. And I do mean imminently.

No, I do not believe we will see 35% taken out. But 20% is a distinct possibility.

Most critically, though, is the speed of the decline. I want to draw your attention to this, because I believe it is this possibility that might very well be imminent.

The necessary prerequisites for such a sharp, sudden meltdown are already in place. Here are a couple present similarities to 1987 I should like to point out...

First, is the fact that, prior to the stock market's collapse in October 1987, there unfolded a nearly 10% decline and a subsequent retracement before things really got cooking with gas. Presently, we've already seen very similar movement come to pass since last October '07 ... with a suspiciously weak retracement (much like that of September 1987) now unfolding following the March 17, 2008 low.

Now take a look at RSI above. Does it look familiar? Oh, do note how during the S&P 100's initial 10% decline RSI settled about half-way into the depths of sell-side strength it typically reaches at its extreme. Oh, and also notice how, during the S&P 100's retracement from mid-September '87 through early October '87, RSI stalled in the vicinity of the point where buy-side and sell-side strength are balanced (i.e. at 50).

Does this not look familiar? No? Well, then, let me jar your memory...

OEX weekly

History may not repeat itself, but I think we are about to see just how much it can rhyme.

I had considered discussing how I might venture playing this pending meltdown, but I think I will simply e-mail those of you who are on my real-time trade notification list and share my plan of attack that way. (And in case you are wondering, things just got real simple.)

Those of you not on my list who wish to watch a disciplined pro kick some financial butt ... and possibly join me, too ... then read "What is the Risk Averse Alert" and you will know what you need to do.

Some weeks ago I wrote a piece wherein I asked, "Is the Second, Size 9-11 Shoe About to Fall?" My commentary was not some dive off the deep end projecting any specific geo-political event I thought was about to descend upon the world. Rather, it simply was loosely putting forward the proposition that in an era when it's easy to conclude all things are not what they seem, some sort of shocking event could coincide with the stock market outlook I was projecting then (and continue remaining alert for) ... namely, a sharp decline followed by an equally sharp advance (the latter being but the first leg of a stock market melt-up I believe is in store once the present risk of a mini-meltdown has passed). My analysis simply showed how the stock market reacted following the September 11, 2001 attack. This analysis still stands.

Now, I am in the camp believing the situation in wealthy, powerful circles is, in fact, quite desperate. I do not for one minute believe the financial crisis that kicked off with last year's sub-prime mortgage meltdown has abated. Indeed, appearances may suggest the situation has been stabilized, but I for one do not believe the extraordinary potential for earth shattering financial trouble has been extinguished. Not for an instant. There simply remains far too much evidence a crisis of confidence has only just begun, given what has already come to pass.

If only this were the worst of it! Indeed, even more troubling is a so-called "free press" that, when it isn't being downright vile, is rather intent on being incredibly deceptive. Worst of all is their pervasive cowardice demonstrated through persistent hiding behind an unfathomable imperceptiveness.

Consider this stream of thought projecting the possibility of some sort of extraordinary geo-political event in the context of the U.S. Congress' refusal this week to pass a supplemental bill funding the Iraq "war." Look at what lengths the American Tory movement has gone to get us into our present sad state of affairs. Do you really think the last trick up the sleeve of U.S. friends to aristocrats backing the filthy British Empire has been played out? I certainly do not.

And that is why it is easy for me to believe all things are not what they seem.

God help us all!

Oh wait, that's right: He only helps those who help themselves. It is my sincere hope, then, the stock market analysis I put forward here may play a fine part in helping those whose names have found my list...

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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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TC said...
This comment has been removed by the author.
TC said...

If I could have moved Kudlow's picture any more "to the right," he'd be kissing Hitler's ass.

A good follow-up to the article linked at the conclusion of today's post:

Three Eurasian Nations Combine Against British Assault

TC said...

Another good follow-up to the article linked at the conclusion of this post:

Growing U.S. - British Brawl: BAE Chairman Detained at Houston Airport