Ben Bernanke Sends Stock Market Into a Coma ~ The Risk Averse Alert

Monday, November 03, 2008

Ben Bernanke Sends Stock Market Into a Coma

Talk about a market trading with as much excitement as Ben Bernanke speaks! It was the third straight day of relatively low volatility, yes. Yet look at the VIX. It's the picture of Chip Diller in a shrill voice imploring a crowd gone mad, "Remain calm!! All is well!" In other words, the bottoming process is likely to continue...

Now, adding certainty to this assumption are the NYSE and NASDAQ McClellan Oscillators. Seeing these strongly push to the buy-side at a time when bargains galore meet a tsunami of cash is a positive development. Precisely the same thing occurred in early-February, following the market's break in January '08, when the bottoming process (ending on March 17th) was just getting under way.

In summary, then, we see a mixed bag of technical readings indicative of a market in transition.

The probability the market is in the process of bottoming — finding buying support, yet still subject to selling pressure — is furthered with a cursory look at the market's decline since May 19, 2008 in particular...


Fully one-third of all NYSE-traded issues are giving "Point and Figure buy signals." Considering how little, relatively speaking, the NYSE Composite index has bounced off its October 10, 2008 intra-day low (see chart below), this is an encouraging sign.

It would have been a bad sign if only, say, 15% of NYSE-traded issues were giving Point and Figure buy signals here. Contrarily, the present impact of positive bidding is leading to a significant widening of Point and Figure buy signals. This pick-up in buying interest is noteworthy because, when tested, those behind it might be more reliably expected to step up to the plate, and defend and/or add to their positions. The NYSE Bullish Percent Index simply reveals there's a growing "vested interest" on the long side of the trade.

Now, I know no more about Point and Figure buy signals today — what this means — than I did on September 19th when I wrote "Swindler's List and the Game of Financial Chicken."

Still, the NYSE Bullish Percent Index allowed me to conclude on September 19th...
Despite positive near-term indications the NYSE Bullish Percent Index presents, it also reveals persistence of a general belief that, stocks are sound investments.

Then, I suggested you...
Consider this in the context of the past year's trading and the current moment's profound tumult. [This was days following the Lehman Brothers bankruptcy—ed.]

... and concluded,
Things hardly seem to be getting better. Yet you wouldn't know this by the NYSE Bullish Percent Index. So ... the NYSE Bullish Percent Index might be seen presenting the face of irrational exuberance.

Was that conclusion ever spot on!

But if you go and read that September 19th post, you also will see why in "20/20 Hindsight Meets $20 Million Foresight," I confessed...
I was thoroughly fooled to think there was time for one screaming advance prior to collapse. Yeah, there was time alright ... all of two days (September 18-19).

If I had given more consideration to the possibility October 2007 ended the stock market's advance from 1974, then I might not have been so sanguine about what the NYSE Bullish Percent Index was signaling on September 19th. I might have given more attention to "irrational exuberance" being displayed in the face of "profound tumult" following Lehman's bankruptcy. I might have perceived the urgent rush into short-term, U.S. Treasury bills on September 17th as being legitimately fearsome, rather than demonstrating "the madness of crowds."

Another moan for a missed opportunity ... over.

The point of this look back at NYSE Bullish Percent Index analysis simply is this. If my present Elliott Wave analysis is correct, then the NYSE Bullish Percent Index supports the likelihood the market is in the process of bottoming.


Looking at the weekly chart of the NYSE Composite Index you should get some better sense of what still might be required before bottom is in...

Check out the RSI divergence at the March '08 bottom. Note how MACD was rising. Both presently are a way off yet from demonstrating the market has made a positive turn. Therefore, expect the bottoming process to continue...

Hey, check out the changes over to the left.

I added a search box, top-left. Sweet. Now, you can easily search for anything you recall reading (and I can find things I've written, too). About time, huh. As time permits, I will label all charts I have published, so you can search for anything you might wish to review.

What do you think of the new blog header background? Personally, I think it's ... golden.

Fast Money
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© 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.

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