A Gift From Jim Cramer In "The Sound of Silence" ~ The Risk Averse Alert

Tuesday, July 08, 2008

A Gift From Jim Cramer In "The Sound of Silence"

Kudos to Jim Cramer for very timely commentary on the precarious condition of the banking/financial system. CNBC will do the small investor a huge favor if it makes available the video of tonight's Mad Money segment where Cramer presents his sobering view.

Should this extended segment be viewed online by tens, if not hundreds of thousands of people, though, most probably will see it much too late. The next few days on Wall Street are likely to bear out just how "soon" the danger Cramer suggests is told by "the sound of silence" from both Washington and the financial industry is to negatively affect the stock market.

Nothing alters my view suggesting the worst selling of any period over the past year is at hand.

Oddly... despite today's advance, Cramer persisted throughout tonight's Mad Money show calling it a "tumultuous day." There's no reading between the lines here. His message is plain, and I quite agree the market is in great danger.

Let me assure you. There were thousands who heard his message and did not "get it." To these folks Cramer likely is to become a Pyrrhic Hero.


What is it I say? The trend is your friend.

What's the daily RSI trend (above)?

This is one of those occasions when persistent weakness under the covers accompanying a solidly declining market ... meets up with an Elliott Wave Guy and makes him as certain as can be about what comes next.

The word "awful" enters into mind. I am willing to bet you hear or read that word sometime over the next few days. It all depends how much of the trip to 500-520 is covered in a single day.

Of course, there's still a possibility the scenario I laid out last Thursday (7.3.08) could unfold. However, certain subtleties have developed over the past several days, raising the probability the market's ultimate target will be reached sooner rather than later.

These are the kind of things, though, where analysis meets its art, experience and wisdom. And yes, when it comes right down to it, there is luck involved. Still, analysis is all about isolating possibilities. So far, it's been a pretty good show, huh.

OEX 5-min

And about today's bounce ... was there some compelling reason RSI should extend higher than it reached just prior to the S&P 100's last big acceleration lower on Thursday, June 26, 2008?

Was it because the market truly was oversold? Or was it simply to demonstrate for all with eyes that see, growing complacency in the belief "bottom" is in?

Is it not odd that, conviction in this belief (demonstrated by the buy-side extreme RSI reached today) should come after such a relentless decline as has unfolded now for some weeks (culminating yesterday with a curiously extreme sell-side RSI reading)? Should there not be more fear here? (And were there, would it not have been adequately registered by RSI during today's bounce?)

Is it not most reasonable to suppose the wrong conviction would be more evident at the worst moment? That's how I see today's RSI reading relative to late-June.

Then, too, add yesterday's NYSE McClellan Oscillator confirmation of the stock market's ongoing decline and note how today's bounce did nothing to alter the oscillator's declining trend. Again, the trend is your friend.

Remember, too, how the stock market's long-anticipated capitulation was expected to register McClellan Oscillator readings worse than last July '07. This has not yet happened. Indeed, remember it was the McClellan Oscillator's non-confirmation January-March '08 which led me to believe March 17, 2008 might not be "bottom."

Is it not oddly coincidental the market from an Elliott Wave Guy's perspective is poised for its worst decline of any seen since last July '07 right at a time when an indicator of its underlying strength (the McClellan Oscillator) is vulnerable, itself, to falling to its lowest reading of any over the duration?

I think not. Rather, experience and wisdom expect everything we see before our very eyes.

How many might look at the NYSE McClellan Oscillator and, seeing its relative position to low points over the past year, suppose the market probably is due to turn higher? Well, step right up and get run over is how this Elliott Wave Guy sees the likely set-up here.

Weakness has been building up and has been confirmed all along the way. Today's advance by no means broke this trend. What's more, all is occurring within the confines of my long-held view expecting capitulation. Even to this day, there is nothing deterring conviction the stock market still has much lower to fall before it explodes higher in a spectacular melt-up, carrying major indexes well beyond peaks reached last year.

Of course, the details of how things might unfold in the present instance have been subject to change. Each day is a new adventure. Such is the nature of the game. Likewise, I have told you before how I am subject to beginning each day's analysis with a measure of doubt toward my present view. This, then, explains my recent thoughts toward the prospect of a bounce. If it ever seems I am all over the board, there's a reason. Nothing is set in stone.

Nevertheless, the evidence right now seems to be strongly suggesting an "air clearing" event is moments from breaking onto the scene.

Sure, I could have waited on the JULY OEX 520 PUTs I presently am holding. Hindsight is 20-20. Now you see why it is so key to be on top of a significant trend!

Wouldn't you know it, though? This one, although accurately forecast, is unfolding rather slower than I had hoped.

No matter. Good fortune appears to be on my side. The market could not be better poised for an awful slide.

(This from the guy whose Mr. Market Twitter at the close on June 5, 2008 forecast a 300-500 point Dow Industrials decline the following day; it was -397 on 6.6.08. It was the same guy who, way back in April, gave a 70% probability to the 3.17.08 low being taken out...)

I won't go through those various technical measures from StockCharts you are all quite familiar with. None is presenting a bewildering picture. Everything is perfectly lined up, and each in their own way is suggesting my outlook for a massacre is, indeed, quite reasonable.

Sure, it could all change in a day. Still, there's no need to go into a table-pounding tirade. I am comfortable with my position. Chances of winning big are excellent...

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