The Risk Averse Alert

Just a quick look today at where I expect the S&P 100 to fall before a fairly substantial bounce develops...




Somewhere just slightly south of 590 is the objective. Once this level is reached I suspect the current leg of the stock market's ongoing, multi-month correction (beginning last summer) could very well be complete.

Have no doubt: there's more to go in the market's move lower. I continue expecting a capitulation — a steep sell-off taking the S&P 100 to the vicinity of 520.

However, before this shock wave develops, I am presently expecting a bounce ... and, indeed, supposing it could be a fairly substantial one at that. Believe it or not, we might even see the S&P 100 recover its entire loss since May 19, 2008 ... and then some ... possibly right up to its 200-day moving average.

How's that for screeching the brakes on a crash event, doing a couple donuts and pealing off in the opposite direction?

Hey, that's just the name of the game. I cannot make the market do as I suspect it will ... when I want it to. Rather, I can only develop some sense about the big picture, then put the pieces of the puzzle together using what's left of the pieces scattered on the table.

The big picture, of course, is my expectation a capitulation will complete the stock market's multi-month correction beginning last summer. This likelihood is formed by evidence I have presented over many weeks prior. I continue standing behind the elevated probability this eventually will unfold.

However, the piece of the puzzle defying my expectation is the one supposing a crash event might occur right now. This has not happened. So, it's time to put this piece back on the table and wait for a better opportunity to fit it into the big picture.

I have not said anything about why, beginning in mid-May, I expected a crash event to promptly unfold, were it, indeed, time for the market's much anticipated capitulation. Beyond what possibilities an Elliott Wave Guy is capable of anticipating, there also were cyclical reasons raising my suspicion. I prefer not talking about these, though, because they seem more often than not to cast a pall of unwarranted certainty upon what are otherwise murky possibilities.

As things presently stand, I simply must take all the evidence before my eyes and suppose some slight variation in possibilities is developing. There simply is no denying it. I could fight it, but, as they say, resistance is futile. When there's money at stake I would be a complete idiot! Not gonna do it.

So, the minute the S&P 100 falls to the area of 590ish I am bailing out of my July OEX 520 Puts. At that time, too, I will be looking to go long July OEX Calls.

Just look what happened late-November through early-December '07. I suspect something quite similar is about to unfold...


© 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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