Advancing Off Another Vince Farrell Bottom ~ The Risk Averse Alert

Friday, October 17, 2008

Advancing Off Another Vince Farrell Bottom

Assuming the stock market's new and improved Vince Farrell bottom is in (and this one, too, in all probability will fail sooner rather than later ... just like all the others this year have), how might things proceed from here? What manner of counter-trend rally might develop? Will it be fast and furious, passing in a New York minute? Or will there be battles along the way on a slower trip higher (possibly featuring some wild swings)?

Per the former possibility, something like the market's two-day launch September 18-19, 2008 comes to mind, when indexes shot straight up without so much as looking back. Per the latter, we might be looking at something like the year 2001...

OEX weekly

Rather than getting hung up projecting what form the market's counter-trend rally might take, simply keep an eye on 200-day moving averages. As indexes approach their respective 200-day moving averages sometime over the weeks/months ahead, we'll be looking for conditions suggesting the present Vince Farrell bottom might soon afterward be adjusted lower in a big way. Following the market's upcoming counter-trend rally, a major collapse is projected to commence.

Given tenuous circumstances ... featuring a crisis of confidence and little hope the credit market status quo might return any time soon ... a prolonged advance over the weeks ahead seems likely ... pitting an emboldened monetarist monkey faithful against a growing contingent fearing an uncertain outcome on a slippery financial slope littered with over a trillion bailout banana peals (and growing).

In fact, I would not be surprised if the stock market maintained an upward bias well into 2009. There simply are extraordinarily negative technical underpinnings right now and these will take time to work off...


I suppose you could argue if the market were about to crash, then elevated volatility would be expected to set the stage. However, given an Elliott Wave view I think has reasonable probability, volatility's present extreme is seen marking a turning point, much as similarly has been the case over the past year.

Obviously, it's going to take a couple months before volatility is reduced to something more typical. You might even imagine 6-9 months passing before today's elevated fear is dissipated, and the prevailing sentiment is more widely convinced the worst is over.

OEX 5-min

Yesterday I highlighted the possibility bottom was registered with what in Elliott Wave parlance is called a "fifth wave failure." On October 9th I requested you "Call Me the Chip Diller of Stock Market Analysts," and presented a 10-day chart of the S&P 100 projecting the very outcome we have seen. And now, trading over the past two days heightens the probability bottom is in. RSI confirming the S&P 100's advance every step of the way higher is a decidedly positive development, technically speaking.

I am not sure the initial push higher off bottom is over. If not, I don't expect indexes to reach much beyond this week's peak, though (set on Tuesday, 10.14.08, at the open). Likely pullbacks we might still see should find support in the vicinity of the line I have drawn on the above OEX 10-day chart.

The first 2-3 days following an options expiration often result in relatively unspectacular trading. This would be welcome here. Look for further indications the market is basing and poising to advance in a big way...

Fast Money
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