So, I did not pull the trigger on a trade. I simply am satisfied to see my outlook more definitively confirmed before jumping in. This worked fine in '02 and it will work again. Patience pays with certainty guiding when to say when. As I indicated yesterday, this is where I am at.
It has been a good week forecasting the stock market's every little move. Wednesday's thud and today's drop were definitely playable. I have been gun shy, though, because I am anticipating something much bigger. And this probably was a mistake on my part. A $500 initial stake could easily have been turned into $750 or more with a couple, quick hit trades. The added pad would have helped going forward.
This is mildly distressing because bounces this week have been a bit more problematic. They practically have been non-existent. This more or less kept me from initiating any trade.
But I am not complaining. It's all good. Weakness this week further confirms my crisis of confidence thesis, reflected by the low volume of NYSE trading leading up to Monday's top. Buyers failing to step up to the plate with the market moving lower this week only further reveals potential danger.
Likewise, the distribution of selling this week across the various indexes I follow continues demonstrating how complacency remains ingrained among the stock market's vested interests.
Should the market bounce as I expect early next week and the volume of shares traded shrink to an even more pathetic level, then forget about it. It's game over. An avalanche likely will follow soon after.
When the generals are weak, how strong can the army be? Look how much ground the S&P 100 lost this week.
What's reassuring, too, is selling did not possess any of the characteristics indicative of capitulation. There's every reason to believe this week's decline was but the beginning of a turn lower in the stock market, rather than completing a consolidation of recent advances (say, since mid-April).
Of course, this is quite as one would expect given the wealth of evidence the stock market's advance off its March 17, 2008 low last week appeared near a turning point. Indeed, as I indicated last Friday, "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." Having sensed, "There simply can be no further delay," it has been reassuring to see Mr. Market dutifully obey.
Thus, "certainty" I claimed yesterday that, "the stock market very much appears on the verge of a meltdown," is elevated by such confirmation as this week's trading has given my outlook.
As you see, this week's trading did not impact the broader NYSE Composite index as greatly as the high-capitalization S&P 100 index. On Wednesday I indicated "[this] suggests there's still a lot of selling yet to come." It still does.
Of course, nothing is set in stone. The next day or three could raise a sense of urgency about the outlook I presented last week suggesting the stock market is about to embark on an accelerated decline resembling the crash of October 1987. Despite showing little sign of buy-side strength this week, chances are the market is about to bounce.
I wanted to throw in the NASDAQ Composite chart for good measure because performance across both major U.S. stock exchanges is consistent with my outlook, both over the next few days and over the next few weeks.
Today's decline to a new low for the week coincided with a lower volume of shares traded on both exchanges (relative to Wednesday). This indicates an exhaustion of selling sweeping across the stock market this week. Hence, my sense the market is poised to bounce.
Although both the NYSE and NASDAQ Composite indexes are finding support at the same relative levels, NASDAQ once again is showing how it demonstrates a leadership role in both directions. Its advance beginning two weeks ago and its decline this week were of greater magnitude, percentage-wise, than occurred on the NYSE.
Both indexes are similarly showing a building, underlying technical weakness. Note how both RSI and MACD at present are registering lower readings than two weeks ago. Subtle though it may seem, this condition is supportive of my outlook for a lot of selling yet to come.
You see here a closer look at how, even despite today's selling taking both the NYSE and NASDAQ Composite to new lows for the week, NASDAQ appears to be paving the way for the stock market to bounce.
However, sometime over the next week or so we should see the stock market accelerate lower. So, here's hoping for a bounce with volume bordering on pathetic...
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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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