Down on Cox Farms ~ The Risk Averse Alert

Wednesday, July 23, 2008

Down on Cox Farms

In case it escaped your notice... when Wall Street milks a cow, it takes every last drop and then, when the cow can give no more, Wall Street draws blood.

Witness FNM and FRE. One or both probably is on the way to being saved by zero. By no means should anyone assume the drama unfolding at the core of securities-based finance is near resolution.

The trend that's your friend is the fate of Bear Stearns, waterfall charts of the GSEs, and a hopelessly compliant Congress. All speak volumes about an ongoing power grab whose end has only begun to play out.

OEX 5-min

And speaking of cows being milked to the last drop ... I must say the situation is looking a good bit like that going into Tuesday morning's trade. In other words, I suspect any weakness at the open on Thursday will be followed by one last bump up to the top of the channel drawn on the chart above.

Much as I indicated was possible, RSI reached a buy-side extreme during this morning's burst higher out of the gate, even exceeding the level it reached last Thursday. Although this latter result generally is atypical, it is not at all unexpected at this point in the grand scheme of the market's decline since 5.19.08.

I have of late written at some length about how I evaluate RSI in the context of Elliott Wave formulations. Today's price-RSI performance fits perfectly with my outlook. The market is very near its moment of truth in a long-anticipated capitulation. So, it stands to reason underlying technical measures (like RSI) would demonstrate a measure of fearlessness most inappropriate for the occasion.

First, though, it appears the cows on Cox Farms might not yet be milked dry. So, I may cash my August OEX 570 Put if the market opens lower Thursday, then buy two back later in the day once the cows are ready for slaughter...

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