Did Scott McClellan Save Stock Market From Collapse? ~ The Risk Averse Alert

Friday, June 20, 2008

Did Scott McClellan Save Stock Market From Collapse?

If there ever were an occasion when political fireworks might fly, it was on Friday when former Bush White House Press Secretary, Scott McClellan, appeared before the House Judiciary Committee. Would a seismic shock develop, blowing apart the foundation of regulatory ineptness — a decades-old Washington specialty the Bush administration has elevated to world class status worthy of a satrap of the British Empire?

Not if the so-called "free press" was to have a say!

From the bog where it is often difficult to distinguish between Arthur Sulzberger, Jr. and Prince Phillip, the New York Times — in keeping with their new and improved mantra: "All the Fits News to Print" — coincidentally reported Israeli military exercises earlier this month that "American officials" (read: Dick Cheney) suggested were a rehearsal for an attack on Iran.

If the financial media are to be believed — NEWSFLASH! they're not — it was this news that rattled financial markets. An attack on Iran apparently threatens still higher global crude oil prices ... and you don't need me to explain what this means.

Any honest observer, of course, wonders whether an attack on Iran simply represents convenient psychological cover for global credit inflation whose restless liquidity seeks investment in valuable "things" physical?

First, though, he considers the timing of the New York Times' disclosure that, an attack on Iran might be imminent. Funny it should come on such a big day on Capital Hill...

Mr. McClellan's performance truly was a thing of bipartisan beauty. Both sides (but not everyone) engaged in thoughtful dialog. Nothing terribly shocking, really, came from any of it, though.

Personally, I believe Scott McClellan has done the country a great service with his candor about the "permanent campaign" adversely affecting Washington politics. I will look forward to reading his book, "What Happened: Inside the Bush White House and Washington's Culture of Deception."

So, has the next astronomical leg up in crude oil prices (and all other commodities) been delayed?

I couldn't tell you. All I know is the stock market's capitulation might be postponed a couple weeks...

I have on several occasions indicated the Elliott Wave Principle affords a measure of flexibility allowing an alternate view toward the stock market's immediate prospects while keeping one's general perspective unchanged. We might be looking at one such occasion where maintaining an open mind toward the stock market's anticipated capitulation is well-advised.

The index performance disparity we continue witnessing — S&P 100 vs. NYSE Composite vs. NASDAQ Composite — remains a concern of mine. Despite things generally proceeding as I have been anticipating, conditions reflecting a broadening of despair across wider segments of the stock market have been defying my expectation for an imminent collapse resembling the crash of October 1987.

Furthermore, Thursday's (6.19.08) advance broke ranks with the stock market's performance during options expiration week of October '87. This might be a minor thing, but were the current period marked by a similar underlying selling urgency, it seems reasonable to suppose such an advance at this late hour represents something of a red flag.

Add to this the fact Friday's decline did not decidedly negate Thursday's turn higher. Indeed, we might have anticipated a widening of issues declining versus advancing on both the NYSE and NASDAQ ... relative to, say, 6.6.08, when the market fell with its biggest thud since peaking on 5.19.08. But this did not happen.

Then came word from Jon Najarian in a CNBC interview indicating the Volatility Spread had narrowed to levels last seen at the March bottom. (Rather than explain the Volatility Spread here, check out the article "Volatility 101" at optionMONSTER.)

So, now I have doubts about the present period's parallel with October '87...

Let me show you, then, what might be the S&P 100's alternate position in moving toward a capitulation completing the multi-month correction it began last summer.


A picture's worth a thousand words, so the only thing I should mention here is a probable, upcoming opportunity to bail out of July 520 Puts. Chances are real good the S&P 100 will move still lower from here before it bounces ... and do so sooner rather than later. So, as soon as I am ready to close out my July 520 Puts, I will alert those of you who have opted to receive Trade Notification. I expect to break even or bank a slight profit.


The CBOE Put/Call Ratio also reveals a present similarity to the early-November '07 period. So, there's added evidence suggesting the market might stabilize here rather than crash.


The Volatility Index presents an interesting read.

First, consider its divergence from earlier this month ... this while the market has proceeded to trade lower over the interim. On one hand I might suspect this condition reflects underlying complacency. Indeed, how can I not think so?

Yet, there's its 200-day moving average presenting something of a barrier ... a point of resistance. Now, were this 200-day moving average not an evident inflection point over the past year or so, I would not bring it to your attention. However, as you clearly can see, it has been. Although nothing is set in stone, it appears this tendency might continue.

Finally, the VIX shows the stock market is nowhere near washed out. In the grand scheme anticipating a capitulation there's a long way yet to go.


Another demonstration of a technical measure indicating the stock market might be at an inflection point. We see here, too, there's a lot of room for further selling, even if this is delayed a week or three.


Same story at the Pump and Dump. Furthermore, the greater degree to which the NASDAQ Composite has been holding up since 5.19.08 is confirmed by how this measure is holding above its 200-day moving average. Yet, NASDAQ's lower Bullish Percent (relative to NYSE) also might be suggesting the NASDAQ Composite will fall a good bit more before it bounces.

So, then, if the stock market does not come unglued immediately (and I believe there's good reason to suspect it won't), let's get ready to play the bounce, build up our risk capital and turn this unexpected delay in the stock market's capitulation into our greater advantage...

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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.

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