Bears Eating the Excitable for Pre-Hibernation Dinner ~ The Risk Averse Alert

Monday, October 27, 2008

Bears Eating the Excitable for Pre-Hibernation Dinner

First up today... perspective.

Day after day the market declines. Yet I continue to contend the worst damage (for the moment, anyway) already has been done. Indeed, I see more reason to remain calm than fear any parallels to a dire past (1929 comes to mind).

Instead, you might want to start thinking seriously about new all-time record highs being set sometime over the next year...

Believe it or not, within the framework of Dow 3600, this is entirely possible.

(I am still working on analysis laying this out.)

Forgive me for being repetitive. The stock market is in the process of bottoming and this simply is going to take some time. Bottom might not be reached until sometime early next year. Contrarily, it might be forming right now. Either way, bottom probably will not be far from intra-day lows set on October 10, 2008.


We've got RSI and MACD divergences going, as well as volume coming in...

Still, RSI and MACD remain in downtrends. So, look first for these trends to finally break. Indeed, that they have yet to do so suggests the market's decline since September continues.

Now, it is quite possible the market's decline since September is but part of a larger decline that began in May. This, too, needs time to complete. On Thursday I showed you what to look for.

The line you seen drawn on the above chart is a dividing line of sorts. Over the weeks ahead you will know the market remains in its bottoming process as long as that line is not penetrated. If, by chance, it is exceeded to the upside, then you will know bottom is in.

OEX 5-min

We did not get the 5-minute RSI improvement I was looking for (see Friday's post). This only increases the odds Maria Bartoromo will moan like she's suffering from a terrible stomach virus sometime over the days ahead. In other words, there could be more pain like today's.

Hey, look at that! The grid on the 10-day chart has shrunk to "just" 10 points. There you have it, then. Volatility apparently is diminishing (duh!). However, you wouldn't know it looking at the VIX.

If you watch todays "Word on the Street" clip, you will see a couple stocks that have turned the corner. This is precisely the course indexes should soon take, as well...

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sdmikev said...

So, was today's late burst (which by the way looked suspiciously like 10/13) something like what you said to look out for (higher 5-min RSI than the red dot) in Friday's NYSE chart? Assuming that's the case and that your outlook from Friday hasn't changed, we should look for a retest of yesterdays NYSE low (or ideally a new low) with a less extreme sell-side RSI than seen after last Wednesday's open to confirm (or suggest, hint at, ambivalently wave in the direction of... -- not sure how certain we want to be in this market) that we've reached something resembling a near-term bottom? Is your outlook still on target with today's action? My reading of your call says yes, but I look forward to your updated take on things.

Thanks as always!

TC said...

Today's late-day burst goes beyond what I laid out Fri on the 10-day NYSE chart. One thing is certain. The market's bottoming process will continue. Extreme buy-side RSI coinciding with today's burst higher virtually assures this.