Dow Jones Industrials Fall But 6000 Points Short of 3600 ~ The Risk Averse Alert

Monday, October 06, 2008

Dow Jones Industrials Fall But 6000 Points Short of 3600

Did you happen to see how deeply 5-minute RSI fell to the sell-side this morning? There apparently was a state of panic on the Starship "Free Enterprise." History judges days like today (and the past week for that matter) as the stuff bottoms are made of...

NYSE 5-min
NASDAQ 5-min

Who was it who said, "Looking for a comeback at some point today ... not a 9/29 redux?" Oh yeah, it was that smart alack Mr. Market Twitter... "Mission Accomplished."

Today shares a similar look to Tuesday, January 23, 2008, which was just one day prior to Vince Farrell's first bottom of the year. This similarity is particularly evident in the NASDAQ Composite...


NASDAQ gapped open lower and closed well above its low for the day ... much as it did on January 23, 2008. So, a final move down ... to and through today's low ... remains an open possibility before another Vince Farrell bottom is in (his 3rd or 4th this year).

This might be a good a time to step inside the confessional myself...

The simple truth of the matter is I did not see the thrashing of the past six days coming. This was not for want of flexibility, nor refusal to consult Miss Cleo. Furthermore, this is not because I have been wrongly married to a forecast calling for a pending bottom. Indeed, I still believe a bottom is at hand.

Yet regarding how steeply the market has fallen in the process of forming this bottom, what can I say? I simply saw no compelling reason for supposing the market was setting up to this end. In fact, analytical considerations more or less have presented a mixed bag ever since July's bottom, and the depth to which capitulation has been demonstrated in an ever-increasing manner over the past month simply was not something I could confidently project.

Furthermore, there was no reason downside volatility we have seen over the past month could not instead have developed during the June - July '08 sell-off. If you were here reading me then, you have seen over the past week's trading what I thought might unfold a few months ago.

My one regret right now is I did not tape to the wall next to my desk the OEX chart I first presented here on June 25, 2008 and again on Friday (10.3.08). Maybe if I had, I would have seen the potential for such negative action as manifested over the past week. Despite recognizing the greater likelihood pressure would reassert itself following the market's rocket higher on September 18 - 19, 2008 (see Swindler's List and the Game of Financial Chicken), I simply saw little reason to suppose this pressure could be momentous.

It's all water under the bridge, for sure. Yet nothing was lost because nothing was at risk.

No doubt, an options play would have payed handsomely. However, I just did not foresee a low-risk opportunity well in advance of the moment of truth that just came to pass. Absent such foresight I simply refuse to loosely gamble with such highly speculative vehicles as stock index options. There will be other opportunities. This I am sure of.

OEX weekly

Pick whichever low spot in '01 you wish. This is where the S&P 100 stands right now. Thus, I suspect a nice bounce is pending.


Surprise, surprise... Today's Advance-Decline differential on both the NYSE and NASDAQ diverged from last Monday's readings ... this while respective Composite Indexes sank to new lows with Titanic force. That's a positive.


The story told by today's extreme widening of the differential between new 52-week highs and lows on both exchanges suggests the market's capitulation is complete.

However, I strongly suspect some kind of divergence will register here, too, before the bounce I am anticipating gets under way.

If I may say so, there are a couple reasons I have focused some attention to the prospect a significant bounce in the market could develop here...

First, the Tory press is equally as worthless as the two Presidential candidates they attempt to shove down our throats. Both Senators are open worshipers of free market capitalism. Yet, both voted for the $700 billion Wall Street bailout, despite the free market saying the securities in question are worthless. Could there possibly be a surer sign both men are utterly unqualified for the position they seek? Where's the free press connecting these dots? Too busy scaring everyone to death? So that you might not get caught in the web — overly distracted by all the noise — I should set your sight on the reasonable prospect the market's near-term fortune is likely to reverse.

Here's how Jesse Livermore put it...

"The reputable weekly reviews when they touched upon underlying conditions were not entirely satisfactory to me. The point of view of the financial editors was not mine as a rule. It was not a vital matter for them to marshal their facts and draw their conclusions from them, but it was for me."

And finally, my discussing the prospect for a bounce has to do with the last comment I made today on my Mr. Market Twitter, right about the time the market was nearing its low for the day...

"Only 6000 more points to go to Dow 3600!"

There is no way a significant move in this direction is imminent. I'm sorry, but history demonstrates collapses do not occur amidst a flurry of widespread, public concern.

Rather, we must wait for another moment when the "What? Me? Worry?" deer in the headlights return to the tracks...

Fast Money
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johan said...

Thanks for this analysis report on dow jones history. The US Stock indices Dow Jones Industrials, Nasdaq Composite Index goes lower because of economic uncertainty. I am beginner and starting investing. have no solid plan for investing future. do you have any link from where i got help on beginner investing how to invest & updates on market etc.

TC said...

Check out an article I wrote, titled "Five Minute 401(k) Investment Management." Follow the links within that article, too, and you should get a good sense about a simple investment risk management technique suitable for beginners.

A good place you might go for updates on markets is the Financial Sense website.