A Gnashing of Teeth Capitulation, Beatles Style ~ The Risk Averse Alert

Wednesday, June 25, 2008

A Gnashing of Teeth Capitulation, Beatles Style

Same picture, different day, and you might be happy to know the boatload of July OEX Puts I am hauling should be doing just fine sometime in the next couple days.

But let me be honest... Those 520s? They probably will not be in-the-money anytime soon.

A double, a triple, or more? Oh yes, a most distinct possibility. And just days from now.

What's ahead on the road to OEX 520 hit me like a ton of bricks this evening. The capitulation: maybe it wouldn't be the weeping kind. You know ... the one I've been talking up ... the one I suggested on Monday was probably off the table.

That's right ... it's the one which, up until last Thursday (6.19.08), was looking to unfold a lot like the crash of October '87 ... the Big Bang kind, where suddenly in a matter of days, 20% ... vaporized ... a bloody, tear-laden, shock to the irrational senses of the CNBC kind.

Apparently, however, this just will not do. So, beyond objective rationale for supposing the moment has passed for the market to collapse in a crash event, what better things might come in a different kind of capitulation ... namely, the gnashing of teeth kind?

OEX 5-min

Might not a seemingly never-ending ratchet to new, post-5.19.08 lows better serve the purpose of making Maria (and all the other perma-bulls) moan like a lost child once bottom finally is reached sometime over the weeks ahead?

Let me tell you. That girl's negative sentiment back in October '02 was the next best thing to Wall Street ringing an "all clear" bell.

Beside forecasting a trip to levels at which major indexes bottomed back in '04, I am willing to bet the last thing Maria Bartiromo will be is "hot for action" following a prolonged, tortuous decline to my tentative S&P 100 objective in the vicinity of 520.

The above short-term chart of the S&P 100 presents something of a template revealing what might unfold before the stock market bottoms and subsequently proceeds to melt up. It's also suggesting one be very careful in picking spots to trade OEX options.

Right now, however, the direction is clear. A sharp decline is near. Yet, I suppose some reading this might be incredulous ... overcome with nervousness caused by incompetents who give technical analysis a bad name with words like "oversold."

Well, you go have yourself a look at the NYSE and NASDAQ McClellan Oscillators. You tell me if something about their behavior since mid-April '08 up to the present moment is suggesting anything other than stark, underlying weakness. Show me some plainly evident divergence signaling the March low will hold, and thus indicating the market is on the verge of melting up.

Oh, I know, the McClellan Oscillator is just one technical measure. It simply is not prudent to rely on one single indicator when there is so much at stake...

So, go look again at the CBOE Put/Call Ratio. Take a gander at the VIX, too.

They're all suggesting the same thing...


Helter Skelter.

Oh, here she come...

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sdmikev said...

Great work. I see another decline tomorrow before a rally of sorts (likely of the "underbought" variety) that carries through the bulk of the summer. The trough to trough pattern has so far been mid-January to mid-March, mid-March to mid-June, mid-June to ... early November? Longer lag between troughs with each trough going deeper. I could see the pattern extending as the market holds on by its fingernails until election time before completely giving up the ghost. With the low volume and volatility I'm expecting over the summer, there's a lot of money to be made by playing local trough to local peak and back again. The trend is your friend -- I always play the move heavier in the direction of the current trend to minimize the chance of getting whipsawed into a big loss.

Keep up the good work, my man. Your blog is the first link I open when I fire up the computer in the morning.


mary jacke said...

My sentiments kind of follow along with Mike's. Here’s an observation that came to me today. This capitulation may be a longer and slower move than 1987. Why? Computers! Traders have much more access to information. Gone are the days of urgent calls to brokers, telling them to "sell, sell, sell!", at any cost. There’s too much information out there. This down market is likely to progress until at least the November elections, and depending on who is elected, into 2009.