Shades of Ali: Down Goes Cramer, Down Goes Cramer ~ The Risk Averse Alert

Friday, August 01, 2008

Shades of Ali: Down Goes Cramer, Down Goes Cramer

It is easy to see where Monsieur Market stands ... all beat up ... one knockout punch away from lights out, face down on the mat. The long-awaited capitulation looks imminently at hand. The only real question is how quickly will it unfold?

Two things I am relatively certain of at this moment...

First, a crushing blow likely will not be delayed until October. And second, the market's bounce off its July 15, 2008 low probably has traveled about as high as it will go.

My concern at the present moment simply is how many days longer will sideways trading persist. This, of course, has practical bearing on open August OEX Put positions.


Yesterday I suggested a slightly altered Elliott Wave count than I have thus far presented. Well, rather than going into all the mind-numbing details, let's just briefly consider the possibility the S&P 100's decline since May 19, 2008 has one last leg to go before completing ... and this move lower will be more or less contained within the red channel drawn above.

(For all you fellow Elliott Wave geeks I am suggesting wave 4 of 5 waves down from May 19th has completed, or is nearly so. The yet to unfold 5th wave likely will be a crushing blow. This, indeed, could establish the entire decline from May 19, 2008 as the long-anticipated capitulation ending the stock market's multi-month correction of gains made over the 2002-2007 period.)

As you can see, there presently are noteworthy similarities to conditions during December '07. This is evidenced with price, with RSI and with MACD. Thus, a pending steep sell-off might not be long delayed.

The next 3-5 weeks should be interesting. Should a sharp decline develop and have all the look and feel of a capitulation (much like January '08), this probably will set up the market melt-up I have been anticipating. The descending blue line drawn on the chart above might be a possible first-stop objective of the coming launch higher once bottom finally is in.


Capitulation evidenced by the VIX generally has been a lightening-fast affair. Given the present position of this underlying technical measure (as well as others), it is not difficult to imagine volatility skyrocketing at any moment.

As such, then, the broad-brush sketch I present here seems to be reasonably credible. Indeed, this slightly modified outlook appears to have the highest probability of unfolding over the days and weeks ahead...

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© The Risk Averse Alert — Advocating a patient, disciplined approach to stock market investing. Overriding objective is limiting financial risk. Minimizing investment capital loss is a priority.

Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.

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