I Heard It on the X and Saw Z Top ~ The Risk Averse Alert

Wednesday, July 30, 2008

I Heard It on the X and Saw Z Top

One thing I thought to mention...

Cramer put Merrill Lynch CEO, John Thain, on his "Wall of Shame" last night. That's interesting timing ... sort of like his calling a turn in the housing market two months ago ... saying one thing (this time, financials have bottomed) ... and possibly(?) meaning something different.

And he heard it on the X — his bull side of a bottom supporting, equity duo — saying the market's rally could mean the corner has been turned. Hey Jim, I think U.S. Steel could sooner fall to $80-100 from its present $160. Go see for yourself. This is entirely reasonable.

Well, he alway says viewers should do their own homework. You do yours, then. And if you like, you can hand in mine for extra credit.


I hope you see there's good technical reason to be holding Put positions here. It looks like a turn lower probably is near.

MACD still bears watching, yes. However, it remains negative, so the S&P 100 is not out of the woods yet.


Just as October - November '07 coincided with but an initial move lower in the S&P 100, so too does the market's decline from May 19, 2008 likewise appear the same ... an initial move lower ... and soon enough followed by further decline, much like what unfolded December '07 - January '08. This essentially is how I am interpreting the CBOE Put/Ratio data, because it "fits" the outlook this Elliott Wave Guy continues believing both reasonable and likely.

An accelerated move lower to the area of 480-520 in the S&P 100 could unfold sooner than many presently are willing to think. That's been my story and I see no reason not to stick to it.

Oh yeah, about the buyers of Merrill's deeply discounted debt... Here's a story from February suggesting twenty-two cents on the dollar is not necessarily a bargain these days:

February 28 – Financial Times (James Mackintosh): “One of London’s most successful hedge funds imploded Thursday when Peloton Partners put the assets of its $2bn flagship fund up for sale and froze its remaining fund after geared mortgage bets left it unable to meet lenders’ demands. Rumours of the crisis at Peloton’s ABS fund, named best new fixed-income hedge fund last month, helped drive the high-quality mortgages in which it was invested to all-time lows this week as traders prepared for $9bn of assets to be dumped. The losses are particularly striking because Peloton ABS was one of the big winners from the US subprime crisis, gaining 87% last year after betting against low-quality mortgages. But last month Ron Beller, co-founder, told the Financial Times that the firm had begun investing in ‘good-quality assets that are trading at deeply discounted prices’ – including a large position in AAA-rated mortgages… ‘It is the classic story of when leverage goes wrong,’ one investor said. ‘But I can’t believe this problem is confined to these guys alone.’”

[5:00 p.m.]
That was an interesting close. It fits all possibilities Mr. Market Twitter suggested today ... all the way around.

NYSE 5-min

A new top slightly beyond last Wednesday's peak (7.23.08) remains an open possibility for the NYSE Composite. Since the start of yesterday's trek up fantasy mountain, RSI is behaving as would be expected.

If a new peak should be set, I would expect this to occur most immediately and with profoundly extreme, buy-side RSI registering. This would "fit" the big picture and could be a high water mark in the market's counter-trend rally off its July 15, 2008 lows. (Don't let the latter point slide by your eye. It's important.)

Otherwise, NYSE Composite may or may not have hit its ultimate counter-trend rally peak last Wednesday. Nevertheless, it likely is reaching the upper end of its present move higher.

Whatever the case, my August OEX Put positions are fine. I still have risk capital remaining, too. If the NYSE Composite bursts higher tomorrow morning, I probably will add to my present position.

NASDAQ 5-min

All things are more or less behaving as expected on the Pump and Dump. Whatever happens with the NYSE Composite ... my view sees NASDAQ Composite remaining below its peak today (though, this is neither preferred nor necessary).

One thing I thought revealing these past two days... Comparing NASDAQ to NYSE, you might see how the former gooses the latter. Then, once the mark is hit, the juice behind the Pump goes away.

Same squeeze, different day...

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