A Ringing Triangle Announces a Feast ~ The Risk Averse Alert

Friday, December 19, 2008

A Ringing Triangle Announces a Feast

Serving Up Bear Meat...

You might have read in other places concerns about index price form since bottom on November 21st, as well as diminishing volume accompanying this. It is claimed the market's counter-trend rally is weakening — a rising wedge, a special kind of "triangle," is assumed to be unfolding — and so, a retest of the November 21st low is thought imminent.

I simply don't buy it. Starting with an Elliott Wave view that assumes bottom is in, and finding underlying technical conditions favorably improving ... maintaining strength ... with no bearish divergences whatsoever developingnone — there's just no good reason to believe the market is about to fall apart.


RSI has confirmed the NYSE Composite every step of the way higher since bottom. Ditto MACD. So, even if a touch of weakness develops over the next few days, breaking the index's uptrend, there's every reason to believe this will be sooner arrested than lead to disaster.

If there's any kind of "triangle" forming, its beginning immediately follows the initial launch off bottom. In other words, it should be seen correcting the initial advance, consolidating that gain and building a base for the next leg higher.

Now, I'm not suggesting this is my preferred view. A complex correction of the market's initial advance off bottom might be forming a "triangle" ... or it might be some other complex, corrective form which, right now, possesses an upwardly sloping bias. Either way, bottom appears in ... and indexes are seen poising to move higher.


As you can see, the NASDAQ Composite's performance this week lagged the NYSE Composite's. So, the risk of some weakness developing over days ahead appears heightened. That's because NASDAQ typically leads in both directions (specifically, in percentage terms).

Yet this disparity has been apparent since Tuesday's rally (12.16.08). The shallowness of subsequent weakness, indeed, might be a taste of trading going into year end. Let forewarned be forearmed, then... (In other words, don't lose your head.)

Just like the NYSE Composite, NASDAQ's underlying technical condition confirms the index's advance every step of the way higher since bottom on November 21st. So, again, there's no evidence suggesting the market is about to fall apart. Any weakness we might see straight ahead probably will be rather tepid.


Nothing set in stone about the Elliott Wave count indicated above. It is, however, one distinct view. In fact, there could be a couple days of meager weakness at the start of next week and this view still would remain valid.

Danger! Mind Numbing Elliott Wave Chatter Ahead. Save Yourself at Detour...

The Elliott Wave Principle indicates a triangle's wave e (the final component wave of a triangle) sometimes violates the triangle's boundary, either falling short of it or extending beyond it. So, even if weakness develops over the next day or three and the lower boundary of the triangle drawn above is exceeded, this count still could remain valid.

Assuming a triangle is unfolding, one thing worth noting is the fact these corrective forms, by rule, appear just prior to the final move in the direction of the trend. In this instance the trend is higher. So, if indeed a triangle is forming, then we know a simple "zig-zag" is unfolding off the S&P 100's bottom on November 21st (with the triangle forming wave b).

The other noteworthy Elliott Wave consideration having to do with complex corrections whose form traces a triangle is that, as a general rule, the final move in the direction of the trend (following the triangle's completion) typically unfolds swiftly and covers a distance equal to that at the widest part of the triangle.

This "fits" the outlook for an upcoming "c" wave [higher] — a third wave ... typically the strongest. It also puts in the cross-hairs the 500-520 target I indicated on Tuesday is the minimum objective of an inverse head and shoulders bottom (whose "neckline" you see drawn above), and likewise raises the probability resistance will be hit right where I projected two weeks ago.


So, all in all, the case for a melt-up remains rock solid. When? ... The moment could be near. The greater bulk of the market's pending surge might likely unfold at the start of the New Year...

Fast Money
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Anonymous said...

Which way are we heading??

TC said...

Your answer, Anonyman.