Whether Water or Money, a Tsunami is a Frightful Thing ~ The Risk Averse Alert

Tuesday, October 21, 2008

Whether Water or Money, a Tsunami is a Frightful Thing

Tonight's post begins with a short, 16 second video clip offering a reminder of the need for "Guaging the Stock Market's Selling Avalanche Risk." Let's just say that, with monetarist monkeys running low on bananas, the phrase, "Be careful, it's a jungle out there," might find new meaning ... as might notions involving "blood in the streets." Not that I believe this risk is imminent. However, its prospect is near enough to suggest one not lose sight of frightful possibilities building with a tsunami of money that's largely unrestrained from engaging in outright extortion. Watch closely...

I jumped too! Yet the fright speaks volumes toward what might be considered a natural follow-on to increasing instances of blackmail — each costing hundreds of billions of dollars — the likes of which contemporary culture apparently is too weak, politically, to resist. The trend that is your friend here is, first, chaos, then, blackmail. If you think this is going away with the Bush administration, you're dreaming. The risk of a selling avalanche in all things "dollar" (including the stock market) sometime over the next few years is very, very real.

The only thing interesting worth noting today follows on yesterday's observation of OEX open interest. Despite the S&P 100 rising nearly 5% on Monday, OEX Call open interest expanded by nearly 3,000 contracts over Put open interest. This is opposite what one would normally expect. So, either "the bottom is in" faithful got more long, or strong hands shorting a rising market added to their hedges. Both have negative implications.


Resistance to any further rise off last Thursday's intra-day low probably is not far overhead. However, just how fast and furious any subsequent selling might be is an open question. I tend to think a slow, painful bleed might be in order. Something to break the will of the "bottom is in" faithful. We'll just have to wait and see what develops...

Fast Money
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Greg said...

Hi Tom,

Looks like a good bet that selling could become an avalanche at any time. Once the selling starts rolling down the mountain it will pick up steam on panic selling and become out of control. As to when and how fast and furious this is what another Elliott Wave Guy is saying:

"Today's [Monday's early action]action raises the probability that the rally seen late Friday till early Tuesday [last week] was all of wave 4 of 3 and we are headed to at least the 7200 area +- 200 pts to complete wave 3 down.

However, now that we are in an environment where no one trusts the government, the banks, or any other financial institution, much less the politicians, an extended decline to the 5800 area +- 200 points is likely.

Once that is done a rally to at least the high seen Tuesday morning is probable before another decline starts to form wave 4 which may be a more complex rally but I will cover that after the current wave three decline is complete."

Fortunately I heeded your 9/24/08 for the record update and on positive trading days cashed in what profits I still had.

Best Regards.

Greg said...


"The decline this am was, I believe, wave d in the triangle and now we are in the wave e rally, the target is between 8868 and 8944 before wave five down to my 5800 target for the DJIA begins. A break below the low this morning will mean the wave 5 decline has begun. As I have said many times before, the 5th wave is usually the crash wave ever since people became aware of the Elliott wave and when a new low is set they realize the wave patern is not an ABC but a fifth to new lows and the panic selling begins."

TC said...

Greg: I'm not discounting the possibility. Yet I don't think a crushing blow of the magnitude you relay here is likely. Right now, I find the Fibonacci relationship between the market's July decline and its September-October decline ... along with the multitude of underlying technicals recently reaching deeply oversold readings ... as encouraging indications the worst is over. In fact, I believe there is greater probability the market already has bottomed than there is a likelihood it is about to fall apart...

Greg said...

Thank's Tom. I value your read on things.