Legislating Bailout By Chaos ~ The Risk Averse Alert

Thursday, September 25, 2008

Legislating Bailout By Chaos

The game of financial chicken appears to have escalated this evening with the announcement of the seizure of Washington Mutual (NYSE: WM). Most startling was learning that, apparently, Washington Mutual's management was not even notified of this action. Bam! Out of the blue. You're done.

Once again, J.P. Morgan - Chase, the financial institution with the deepest ties to the City of London, was there to pick up the pieces for pennies on the dollar.

Does anyone else smell a rat? Could the administration be purposely trying to precipitate a panic? Lord knows, chaos is this crew's mantra. Is this the means by which the Paulson plan is to be jammed down the throats of taxpayers so the next phase of the swindle can proceed?

The friends of Shemp in Congress — compatriots in a hyper-inflationary scheme to drive the nation to economic ruin — not surprisingly are on board with the Bust administration. And what is McCain doing speaking at Clinton's Global Initiative? Stealing votes from Senator Obama? Why not. Mr. "change we can believe in" is copasetic with Paulson's fraud. Some change. Is this what we're to believe in? Rant over.

Monsieur Market, Monsieur Market ... what are you doing? Returning to your August ways? Up today, down tomorrow, and God knows what for some days thereafter?

Maybe so, but a base from which the market launches higher appears to be forming...

NYSE McClellan

The McClellan Oscillator's bounce off bottom last Thursday (9.18.08) was considerably stronger than its corresponding bounce off bottom in March. Still the Oscillator remains on the sell side (i.e. below 0). Thus, pressure can be expected to continue, much as was the case leading into the March 17, 2008 bottom.

Here, too, we see another reason to suppose a retest of last Wednesday's close might be in store. This will present an opportunity for the McClellan Oscillator to diverge and demonstrate underlying strength building.

You will recall I am similarly looking for divergences in daily RSI and MACD to form ... favorably setting up a long stock index ETF trade ... as well as possibly an OEX Call option position, should a "quick hit" opportunity appear a low-risk proposition.

If the McClellan Oscillator's performance in March offers any guidepost, then look for it to rise to the buy-side (i.e. above 0) before the market advance I am anticipating develops legs. In the meantime we might expect something of a July 15, 2008 - August 11, 2008 redux while chaos reigns in Washington...


Interesting how the CBOE Put/Call Ratio over the past couple months is behaving similarly to the February - March period. Maybe the market's turn higher will develop even sooner than I presently am supposing?

I was so close to pulling the trigger on an OEX Put position today...

The Put/Call Ratio is displaying the sort of bullish sentiment bias one would expect with the Hope Waxes Eternal Show pumping its $700 billion prize. Believing Washington likely would not oblige, and instead devolve into a freak show ... and now seeing overnight futures diving on the news ... I regret not grabbing the October OEX 510 Put I was eying.

Because this is how I was reading today's advance...

OEX 5-min

RSI's push to a buy-side extreme (see the black dot) presented the first clue this week's selling probably is not over...

(Hmm, look where RSI reached last Friday out of the gate. Coincidence? I think not.)

Then, witness the price-RSI divergence forming into today's OEX peak (see the red lines). This, of course, is very typical when the market is poised to turn lower...

Finally, note RSI's dive to the sell-side (i.e. below 50; see the blue dot). This is unlike what happened last Thursday after the OEX had launched off its bottom and then pulled back. Then, RSI held at 50 (i.e. at buy-side and sell-side balance) on the pullback. This was not the case today, however.

Shoulda, woulda, coulda bought a Put! Oh well.

Fast Money
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