Stock Market Not Hostage To Congressional Bailout ~ The Risk Averse Alert

Tuesday, September 30, 2008

Stock Market Not Hostage To Congressional Bailout

Today goes some way toward confirming something I wrote exactly one week ago, when I claimed... "The authors of Swindler's List would only be sinking themselves" were a market collapse precipitated.

So, too, in addition to Monsieur Bear Market ... our boy Shemp — Mr. Dow 8200 — also took the day off. Another false sinking victim?

Still, the dangerous game of financial chicken proceeds ... and each new swindle builds upon the last. Fortunately resistance endures.

It is easy these days to get caught up in the media frenzy. Not that their hysteria is without basis... It's just that in my lifetime I have seen so many deceptions. Thus, too, I wonder about the present occasion.

I wrote a comment tonight at "Beat the Press," asking, "Might the frenzy surrounding the bailout be a reflection of the degree to which private finance can effectively blackmail the public, having built up a Ponzi scheme of such incredible proportions it has almost become a laughing game to threaten the pyramid's collapse, while control over the commercial banking system is consolidated, the public is extorted and the Treasury is further looted?"

Think about this. In fact, you might even copy that quote, paste it in an e-mail addressed to your state's U.S. Senate representatives, and ask, "What of this serves 'the general Welfare?'"

My point is Congress could turn up the heat of resistance a notch or three, indicate an intention to pursue a non-compliant course, and stabilize credit markets without spending a dime. The minute talk turns to a bankruptcy reorganization and reconstitution of a National Bank, watch these slime ball financiers straighten up real quick.

Whatever comes of this — whether Congress bends or resists — it appears with each passing day any market stabilization would be but only a temporary reprieve.

Funny how real-world circumstance (fluid as it is) coincides with possibilities put forward by such an esoteric analytical framework as the Elliott Wave Principle. Surely, I don't need no stinkin' Miss Cleo.

Do you remember when the stock market normally would move less than 1% each day? I ask because recent weeks' volatility really has offered no heightened, low-risk trade opportunity. At least not in my book anyway ... that is, other than the chance to bail out of ultra-short ETF positions on Wednesday, September 17, 2008.

I mean, up, down, all around, and not knowing where next is no way to trade anything. Not for me anyhow.

Right now, I am satisfied my plate is clean because methinks I have been seeing things straight. It indeed appears a playable bottom is at hand...


The NYSE Bullish Percent Index took quite a hit yesterday and did not recover much today (this week's range is circled). Still, in a framework expecting the market to rise this particular measure could not be better positioned.

It is, of course, diverging from the NYSE Composite Index which has been setting new lows. As you know, this is bullish ... well, in this case it appears to be at least moderately so .

I last presented this indicator on Friday, September 19, 2008, following the market's explosion higher off the intra-day low set just one day earlier. At the time the Bullish Percent Index was positioned above 50, and approaching its declining ceiling. Then I said, "Despite positive near-term indications the NYSE Bullish Percent Index presents, it also reveals persistence of a general belief that, stocks are sound investments." Finally I concluded, "this condition is precisely what one would expect just prior to a wicked thrashing."

Given what has happened since, I should say the negative ramifications of this contrarian viewpoint bore out sooner than I was expecting. Still, comparing the NYSE Composite's performance with that of the Bullish Percent Index over the course of 2008, I think the question I asked on September 19th is worth repeating: "hidden behind the mayhem of market action of late ... is this [disparity] not a distinct sign things are not as bad as they seem?"


Price-RSI and price-MACD divergences since the July 15, 2008 bottom ... and then again since the September 17, 2008 close ... are, again, a positive development suggesting the NYSE Composite is poised to turn higher.

I know this is not "new news." But because it supports an Elliott Wave view where this week's decline to new lows is neither a show stopper, nor portends a collapse ... and rather substantiates the likelihood an advance up to the 200-day moving average might be in store ... I wanted to confirm the importance of these RSI and MACD divergences.

(For all you Elliott Wave geeks I believe this analysis supports a view where a "b" wave down has formed and a "c" wave up is slated to unfold. "Something is wrong" is a conclusion one might make when a "b" wave is forming. RSI and MACD divergences suggest that, indeed, "something is wrong" with the NYSE Composite's further decline beyond its July 15, 2008 low.)

NYSE 5-min

The question now is whether bottom has been set and has the turn higher I am anticipating begun? Well, I think it has and here's why. There's "balance" in today's lift higher. RSI did not blow out to the buy-side. Although rising firmly to the buy-side (i.e. above 50), RSI did not rush to an extreme reading where "irrational exuberance" is displayed.

Contrast this with the advance from Thursday, September 18, 2008 through Friday, September 19, 2008. Quite a different picture. And we have just witnessed the consequence of this buy-side blowout ... through the abrupt thrashing that followed.

So, right now the NYSE Composite appears it might pullback to 7400-ish, then resume today's move higher. The picture is much the same with other indexes.

What this means, then, is you can call or write your U.S. Senators and tell them the market doesn't need a "Yes" vote on the hyper-inflationary blowout bill...

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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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