The Risk Averse Alert

Hey...

You've gotten to know me. You have seen I am exceedingly cautious, methodical and prone neither to hype nor hope. You know I want to play options only when I am dead sure the stock market is at a point where a quick exit is assured. This way, if things aren't just right, I'm out ... not giving away any more time value than reason justifies.

Well, that's where I, and everyone following, are at. And being on top of this I will have you know — keeping in mind I am careful not to hype anything ... and wishing to stay that way —

IT'S GONNA BE A TURKEY SHOOT.

I'm serious.

We're gold.

It's all very simple. Odds resting strongly on an imminent stock market meltdown ... have been, and remain, the substantiated view of this Elliott Wave Guy.

Let's review...

Was it not a bounce I forecast this week? And did I not tell you the Elliott Wave Principle affords an ample measure of flexibility to match the game's underlying reality?

The degree to which the one — the only — S&P 100 chart with an Elliott Wave count is altered by the reality of the bounce is so insignificant as to entirely justify my not going into explaining any of it here. Truly it would only bore you.

As you know I have taken a few, simple technical views and explained how what we are seeing before our very eyes (under the covers) strongly supports the negative outlook the Elliott Wave cautions.

Of course, it's important that, as time proceeds, you stay on top of these things and confirm all remains well. You want to see everything still falling into place, as was originally anticipated.

Well, the truth of the matter is all is well and falling into place. Revealing technical measures are uniformly moving in the very direction one would expect at a time when the stock market historically has been vulnerable to falling decisively. The same points of view I have previously presented continue supporting my negative outlook and confirming it all the more.

I should remind you this forecast of imminent "doom" is a prelude to a stock market melt-up I continue projecting.

You should not lose sight of this when talking heads freak out during the pending collapse.

Now, you could take my reading on the NYSE and NASDAQ McClellan Oscillators, and see how my April 25, 2008 analysis still holds up (as does my follow-up, May 16, 2008 analysis). You would quickly conclude the stock market's underpinnings have only grown weaker, too.

You also could look again at the CBOE Put/Call Ratio.




If you consider MACD (presented in the bottom panel), you see the Put/Call ratio is in a similar position to February '08 and December '07. During both these prior periods the stock market was decidedly falling. Again, the trend is your friend.

Now, take a look at the peak this reading registered last August 2007. I suggest it should be exceeded as the stock market collapses straight ahead.

Why is this?

Because corrections end with fear-filled capitulations. Such things — their presence or absence — are confirmed by underlying technical action.

If you're really paying attention, you see further evidence above showing why January/March 2008 could not be the stock market's bottom. The CPC's MACD should have exceeded its August '07 peak, baby.

Here now, I'll go slowly...

Summer 2007 was but the beginning of the market's present multi-month correction. A fear-filled capitulation should bring more pronounced Put buying than came at the correction's beginning. We simply did not see this January/March 2008 when the stock market was cratering.

Add this to a most reasonable Elliott Wave view suggesting the worst is yet to come ... and you have in a nutshell my utter certainty at this advanced, long-anticipated moment. That's how patience pays, I say.

And I believe just how much will be presently revealed.




That's what an imminent collapse to the area of 520 on the S&P 100 might look like. The marked areas stand out for their suggesting such a decline could, indeed, happen ... and stat.




Now, what if this thing decides to hang around for a few more days? What if the bounce off the first leg down in the stock market's unfolding meltdown "needs" to carry the S&P 100 upward to 647 before the landslide begins?

Of course, I am asking out of consideration for my position's time value. And my thoughts on this, right now, are fairly simple.

First, I could not purchase the next higher OEX strike (in this case, the 625) at a price I paid for my 620. And second, this is why I begin a speculation like this putting only $500 at risk.

Let's put it this way. I simply have a high degree of confidence the S&P 100 will move in my position's favor soon enough (and with much fervor) to present an opportunity to bail out if need be. Truth is I see no reason to even remotely consider this need, though ... not even if the S&P 100 lurches to 647 before falling to the canvas.

It's well enough $500 is a tiny stake. Risk is low because any last-gasp advance to 647 simply stands as a worst case scenario. Even if this occurs, it probably will unfold rapidly, and reverse even faster. In other words, if the stock market should continue holding up, it likely will be only for a day and not much more.

Were this to happen, might we possibly anticipate a price-RSI performance exhibiting a measure of irrational exuberance more extreme than when major indexes topped on May 19, 2008?

Yes, we might.

But is it also possible the S&P 100 already completed its bounce? The stock market's "generals" failed today to extend yesterday's gain — unlike the broad market. Is this not a reaffirmation of a foretelling weakness being displayed in a market prone to killing its generals?

It could be.





As you can see, the same questions surrounding the stock market's immediate prospects (i.e. over the first couple days trading next week) are raised by its broadest measures. Maybe they've peaked, maybe they haven't. Either way, there's not much further to go before the really big show begins...




© 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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