Hindsight Analysis: Why I Missed a Golden Opportunity ~ The Risk Averse Alert

Saturday, October 11, 2008

Hindsight Analysis: Why I Missed a Golden Opportunity

As promised, I wanted to review something I missed prior to the market's current thrashing. Had I recognized this, well, I'd rather not think about the green. All I know is there will be other golden opportunities...

If you go back to the post I made on September 25th, you will see I was on the one hand supposing the market was forming a base ... and yet on the other hand suggesting the NYSE McClellan Oscillator was indicating "pressure can be expected to continue."

Having isolated the McClellan Oscillator's performance February - March, the Oscillator's performance in the period following the market's July 15th low seemed to bear considerable similarity. This was my reason for thinking the market was basing for a launch higher.

However, had I argued the McClellan Oscillator's rise up to its 0-line (coincident with the NYSE Composite's burst higher September 18-19) was setting up the market in a manner similar to early-June, I might have been ahead of the curve and seen disaster coming.

The same day (9.25.08) I also included a chart of the CBOE Put/Call Ratio. Not noted (but just as ominous as the McClellan Oscillator not penetrating its 0-line) was the Put/Call Ratio's MACD falling to, but not penetrating, its 0-line. I just assumed it would. That's why I wondered whether "the market's turn higher [might] develop even sooner than I [was] supposing."

The CBOE Put/Call Ratio MACD's failure to penetrate its 0-line, though a subtle warning, was a red flag nevertheless.

Something in this same light might be said of index RSI and MACD... Each was decidedly positioned to the sell-side of their respective scales. However, I thought their divergence from sell-side readings registered at the July 15th bottom was the more significant conclusion. This I detailed in my 9.26.08 post.

Probably the one technical measure that should have alerted me to the negative prospect these other indicators were raising was the NYSE Bullish Percent Index. I had presented this chart on September 19th. At the time I suggested the BPI's rise to the upper end of its range over the past year was "a distinct sign things are not as bad as they seem."

Yet I also indicated, "the NYSE Bullish Percent Index might be seen presenting the face of irrational exuberance." However, at the time I considered this a "longer-term" warning sign.

So, let me just conclude this "analysis of my analysis" with one simple fact...

If I had any inkling a reasonable Elliott Wave possibility suggested an historic swoon was imminent, my read of various underlying technical measures might have put me in front of the curve.

I saw the McClellan Oscillator's similarity to its early-June '08 position (despite not indicating this until today — you'll just have to take my word on this). And I did note my concern with the NYSE Bullish Percent Index. Yet within the framework of the Elliott Wave I just did not fathom the outcome we have seen.

Somewhat instrumental in shading my thinking were cyclical considerations. These I highlighted in August. And so now you see why "I generally give cyclical considerations a back seat to other, less arbitrary technical measures" ...

Now the $64,000 question is whether projected index declines to the area where each respectively traded in 1994 might happen sooner rather than later (as in over the next couple weeks).

As always, I will defer to the Elliott Wave Principle and let underlying technical measures substantiate my view of things. No doubt, right now, a collapse is a distinct possibility.

From time to time I have been given to suggest "things can change in an instant." For example, only a few weeks ago I would have considered an imminent collapse rather unlikely. And so you see with your own eyes how quickly things can change.

Don't get me wrong here. The more positive outlook I expressed yesterday is my preferred view of near-term possibilities. Again, though, nothing is set in stone. My eyes are wide open. There's nothing saying a "deeply oversold" market cannot become more so. This is not "hedging." Rather, it's keeping things real.

That said, I hope this look back on what I missed will help you with your own analysis of the stock market — where greed and fear create a lemming-effect conveniently measured in dollars...

* * * * *

© 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!