A Type F! (Pay Attention!) Market ~ The Risk Averse Alert

Tuesday, August 05, 2008

A Type F! (Pay Attention!) Market

If you are worried today's trade was something other than a technical move meant to squeeze the sell side in an as-yet-completed capitulation, you had better take a look at the August OEX contract's open interest. Allow me to summarize...

The odds of this market getting squeezed any higher appear to be as close to ZERO as could be.

I simply refuse to believe that, yet another period of rallying prices on diminishing volume could endure for as long as was the case from March 17, 2008 through May 19, 2008. No volume means no fear ... and in times like these I simply cannot imagine a more inappropriate stance toward the riskiest financial asset class of all — equities. There are just too many financial institutions that MUST BE on the brink of insolvency. Merrill Lynch has proven this.

This is not to discredit my own melt-up thesis. Rather, it is only to suggest that, when the market's melt-up finally gets under way, it should coincide with a notable pick-up in the volume of shares traded ... increasingly brought to a rising market out of fear.

Now, having laid this claim (and believing it a critical necessity, too), I would suggest one should expect a seminal event to kick off such change as adds greater fear to an ongoing (and widening) crisis of confidence.

In other words ... I would hint ... Bear Stearns possibly was not the end of it. Merrill, Merrill on the wall still reflects something frightful ... a perfect volume-boosting event ... now, and then after ... something that gets the ball rolling. There's no doubt the very possibility remains real by all things technical ... let alone what the news dares not tell.

Yet, too, there's also no doubt something demanding a slice of humble pie could just as well break out. Technically speaking, we're right at the edge ... which, when you're playing options is not a bad place to be when you are "all in." You'll see.

If the need to take losses and live should come, here at the edge there should be time enough to rightly react. This I know for a fact.

Yes, this game is fast-paced, but in reality it moves in slow motion. There typically is time to react to an unanticipated turn of events. I believe we have time here, too.


A picture is worth a thousand words... So, look and see the revealing story about the S&P 100's 50-day moving average and its RSI. Yes, MACD still bears watching. So too, though, did it in December '07.

Elliott Wave speaking ... whether it's a fifth wave [down] or a "C" wave [down] pending ... either way ... lower she go. Tarzan of financial jungle give near-term decline below July low a 90% probability.

Of course, I live for that hard decline right away. But if not now, I should live for another day. Just look at the brick wall that's revealed in the picture above. We should have plenty of time to reasonably react, then, if, by chance, it's just not time yet for "bombs away."

[5:00 p.m.]
Well, obviously today's trade was not what I expected. However, as frustrating as the market's buoyancy is proving, I simply must continue supposing this will end very badly ... and, believe it or not, stat.

OEX 5-min

Today's coincident RSI performance is rather suspicious. Despite the manner in which RSI held the buy side, its failure to challenge extremes set last Wednesday (7.30.08) ... as well as Wednesday before that (7.23.08) ... is rather conspicuous. Should this persist following tomorrow's open, I would consider today's performance fitting for a consolidation reaching exhaustion.

Prior to this afternoon's Federal Reserve Open Faucet Committee announcement there were several quarters noting an absence of volume behind the market's advance up to that moment. However, I suspect this circumstance was largely reversed over the last hour and three-quarters. Too bad, so sad, I'm mad. Boy am I mad right now.

Still, I am by no means discouraged by today's trade. If the Elliott Wave count assigned to the above chart is correct, then a quick decline to new, post-5.19.08 lows is, indeed, imminent.

So, hold tight. There simply are many issues among the walking dead that have been squeezed like a used lemon, and whose recent gains stand to evaporate like rain in the dessert. I simply am not convinced anything about the immediate outlook I've recently indicated is changed by today's mad push higher.

If nothing else, today yet again revealed a taste of things to come. That is why it is not at all fanciful to suppose a sharp reversal could unfold ... and then be followed by an equally sharp advance ... all before next Friday's expiration.

(the Dollar Index, indeed, supports the possibility)

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Anonymous said...

There's hope yet:

sdmikev said...

So, was AIG's giant steaming dump of an "earnings" (actually, is it appropriate to call it that when you lose $5B in a quarter?) report the tipping point? Is today's low volume uncertainty about to morph into a Th-F rush to the exits?

Or will this just fuel another rally under the "there's the kitchen sink, the bottom is in now, for sure" theory?

I'm pretty confident that tomorrow will be interesting. i only hope that it's both interesting AND profitable for those of us holding puts. My failure to cash out a larger fraction of my (then) profitable ATM puts on Monday has been bugging me all week. I'd love at least a do-over.