Taking the Pulse of a Dying Patient ~ The Risk Averse Alert

Thursday, August 21, 2008

Taking the Pulse of a Dying Patient

The ever-sly Monsieur Market continues his typical way of frustrating an analyst's ability to forecast what's to come over days ahead. Whether he will rise to a new high in his post-July 15, 2008 bounce ... or soon fall to his knees in the course of suffering death by a thousand cuts ... I cannot say.

However, at the moment, though diseased, he appears strong enough to say, "I'm not dead yet."

OEX 5-min

The S&P 100's move lower since Monday, 8.11.08 evidently is a three-wave affair and, therefore, appears corrective in nature. That today's trading resulted in the index rising above its low on Wednesday, 8.13.08, suggests these three waves lower are related. Add to this improving relative strength (RSI), and you simply must conclude the S&P 100 is slated to move higher from here.

However, it is entirely possible the S&P 100 could suffer its death by a thousand cuts with a special, trend-ending form known in Elliott Wave parlance as a "wedge." Each component wave in a wedge subdivides into three waves. Thus, a wedge's first wave may have formed from 8.11.08 - 8.20.08. Me no know for sure, though.

NYSE 5-min

Quite the same picture on the NYSE. This bad boy has been on his knees for the better part of the past month, though. Bids could come into the Big Board and, indeed, carry the NYSE Composite to a new, post-July 15, 2008 high ... and still this important index — unlike all others — might yet have completed its decline since May 19, 2008.

NASDAQ 5-min

Quite a different picture at the Pump and Dump. It's possible the leadership role the exchange favored by boiler rooms all across America has reversed to the downside.

So, on one hand we see how a mountain of liquidity ... a misguided psychology believing a radically altered environment negatively affecting the one sector which over the past thirty years has become "the economy" — the financial industry — is somehow insignificant and inconsequential ... and a positive cyclical period ... are acting to hold up the stock market.

On the other hand, however, are Elliott Wave considerations suggesting July's lows are not bottom to the market's multi-month consolidation of gains made from 2002-2007.

Combining the two, the stage is set for the last act of death by a thousand cuts over the weeks ahead. Just how this likely will unfold, though, I cannot say. Bottom might be near when the SEC announces its new short selling rule sometime over the next few weeks...

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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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