Volatility to Usher in the New Year? ~ The Risk Averse Alert

Wednesday, December 31, 2008

Volatility to Usher in the New Year?

An insightful Fast Money, "Word on the Street" segment tonight. It was "Must watch TV," helping establish a sense separating the trade from the trend. Made the wheels on the bus go round and round, if you know what I mean...

One quick comment on the trend. There is an incredibly sour tone in most everyone's outlook. This, it seems, could make for a decidedly buoyant market over months ahead.

Then again, who knows what might blow up next? Maybe November's low will be challenged sometime in '09.

It just seems comparisons here might better be made to the 2001-2002 period (much as I indicated the other day), rather than to the first quarter of '03 when the market was bottoming. Yet then again, maybe the greater appearance of a market bottom in '09 will set a trap whose springing sometime over the next few years could prove devastating.

Either way, the market's November 21st bottom should put a floor under trading during the coming year.

Now about near-term prospects...

NYSE 5-min

A little birdie is telling me a short-term top might be near. It could come Friday. Then, next week, a fade ... taking indexes to the low end of the trading range over the past couple weeks. Following this, the upside explosion — the melt-up — I have been projecting.

Look at it this way...

Those (like us) who caught bottom in November might be inclined to lock in profits early in the New Year (since the capital gains tax liability will not be due for another 16 months). This might create a significant source of selling pressure sometime during the first several trading days in 2009.

Following this, though, the market melt-up still appears likely to develop.

NASDAQ 5-min

The NASDAQ Composite serves up more reason to suspect a short-term top is near. Today's surge out of the gate carried RSI to a buy-side extreme (above 80). This imbalance between buying and selling strength typically warns of an imminent turn.


Here's more reason to be concerned about upside prospects. VIX bears watching upon the market's pending melt-up. The 200-day moving average might prove a barrier, much like early this year.

Likewise, look how much VIX has come in despite the fact indexes are trading lower now than where they stood on election day. This suggests the market's near-term pullback could be sharp and unfold rather rapidly.

Be that as it may, I see no reason to panic. The market's technical underpinnings still remain decidedly positive.

One thing is certain. The Elliott Wave outlook, near-term, advises being alert to a pick-up in volatility ... in both directions. Both the pending pullback and subsequent melt-up could develop quite quickly (and result in much confusion as well).

Alright then. For most folks 2008 was a dog — a bad joke. This was not the case here, though. So, I guess we have the luxury of ending a joke of a year in all good pleasure...
A New York City yupette was shopping in an upscale pet center.

"I want a dog of which I can be proud," she told the salesman.
"Does that one have a good pedigree?"

"Miss," declared the clerk, "if she could speak, she wouldn't
talk to either one of us."

Fast Money
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