Fingers Crossed at a Threshold ~ The Risk Averse Alert

Thursday, August 07, 2008

Fingers Crossed at a Threshold

Analysis put forward two days ago continues holding up. The S&P 100's 50-day moving average appears it will present resistance to any further substantial move higher.

The question now is whether the index will immediately fall to the lower end of the past month's trading range ... and then lower still to complete its decline since May 19, 2008 ... which quite likely, too, will end its multi-month consolidation of gains made from 2002-2007.


The S&P 100's RSI and MACD are at critical points substantiating expectations for a decided turn lower. RSI is stalling in the area where buy-side and sell-side strength are balanced. MACD is fast approaching the threshold whose decisive crossing would confirm a reversal of declining momentum since May. There's no doubt the market is at a point where a resumption of selling is likely to develop.

The lines drawn above show support not far below July's low. Today's trading suggests the S&P 100 has begun its descent to this area. However, given a relentless effort to hold everything together despite a raft of negative developments at the core of contemporary credit markets ... well, who knows, the S&P 100 may levitate for another day or two before heading lower.

Once bottom falls out, though, a little classic "throw over" briefly leading the S&P 100 to trade below support indicated above would be neither a surprise nor an unusual development. In fact, with the S&P 100's ballpark objective in the vicinity of 520 this brief violation of support should be expected...

[5:00 p.m.]
Now that's better. I am nothing but pleased about today's trading ... start to finish.

OEX 5-min

A gap open lower is always a good way to start a potentially strong move down. Follow this with sideways trade failing to challenge the opening gap ... then a fall to new lows going into close ... confirmed by RSI ... and there's further evidence supporting a forecast turn of events justifying August OEX Put positions.

There is a risk downward trending RSI might persist ... with one more lift to a lower high coinciding with the S&P 100 rising slightly above yesterday's peak.

However, that's why today's entirely weak performance ... start to finish ... is noteworthy. It's not the quality of a market itching to go higher...

* * * * *

© 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.

Nothing is set in stone. Nor is the stock market's path of least resistance always known. More often than not, there are no stock index option positions recommended.

There's an easy way to boost your investment discipline...

Get Real-Time Trade Notification!