T.C. Parts Ominous Clouds Approaching His Sunshine Band ~ The Risk Averse Alert

Thursday, July 31, 2008

T.C. Parts Ominous Clouds Approaching His Sunshine Band

Although I cannot discount an [unwelcome] advance developing over the next day or three, I rather suspect the likelihood Monsieur Market rises much further from here (if at all) is slim at best.

All day today I have been concerned about whether I am missing something. The question I keep asking is whether the market's counter-trend rally since July 15, 2008 might extend in a similar fashion as occurred from March - May '08.

Truth is this could happen.

Truth, too, is most everyone (as best as I can tell) who a couple weeks ago held a negative view toward the market (and who remain bearish going forward) believes the current counter-trend rally will, indeed, extend. This is just a casual observation and is by no means conclusive.

(Any analysts you know of? Leave a comment.)

I am not about to join this group. Likewise, I doubt I will be forced to change my mind.

Given all indications under the covers, some of which I have presented here recently (going back to my most current McClellan Oscillator analysis in particular), I am, indeed, willing to go out on a limb...

It is show time!

Despite there being many [superficial] things suggesting a level of pessimism not typically preceding a collapse, under the covers pessimism does not run nearly as deep. In fact, it's practically non-existent.

Yet, too, there are certain objective measures indicating a heightened degree of negativity. To whit, there's the Investor's Intelligence poll of newsletter writers and the "Smart Money" Oscillator (hat tip to reader Mark).

Now, let me ask you this: do either of these make unlikely a collapse followed by an equally sharp advance over the next 3-5 weeks?

I think not. Furthermore, I think we might best expect this.

(I should add, though, this prospective view suggests a slightly altered Elliott Wave count than I have thus far presented. It's so minor it can wait until tomorrow's post.)


Just one simple point I wish to make in reference to the above chart...

Check out those instances when the MACD (a momentum oscillator) on the NYSE Advance-Decline differential rocketed strongly to the positive.

Now, map these to price action on the NYSE Composite...


Look how pathetic the NYSE Composite's advance is in the present instance! Indeed, you also might reasonably conclude the NYSE Composite has, for the most part, shot its wad.

Now, look back again at the NYSE Advance-Decline differential and observe how its MACD weakened as the NYSE Composite was beginning to turn over. Lo and behold, it's already happening again. Yesterday's NYSE Composite advance took the index right back to the area where it peaked a week ago. However, the MACD on the Advance-Decline differential diverged. This is bearish, and...

That's the way, uh huh, uh huh, I like it, uh huh, uh huh.

(I dare you not to play that tune in your head, over and over, for the next hour or so.)

There's more revealing technical data I could present here, but it can wait...

My August OEX 520 Puts are not an immediate concern. Contrarily, my August OEX 560 Puts are. Stay tuned to Mr. Market Twitter for any action I might take on these.

(Many thanks to readers on my Trade Notification list who replied with kindness to my apology for not posting anything on Twitter today.)

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Anonymous said...


like your stuff! But disagre in the timing of the capitulation...

1. thinking sept/oct
2. thinking sep/oct is another leg down in a 18 month bear market
3. think we melt up as you talk about...but again thinking it is a long way off.

keep up the great stuff...keeps me on my toes!