Who's Your Daddy? ~ The Risk Averse Alert

Friday, December 05, 2008

Who's Your Daddy?

Yesterday, the simple message was... "So, now we await a price-RSI divergence on the sell-side to indicate an imminent charge higher."

500,000 disillusioned souls victimized by the magic of the marketplace ... precipitating a well-contained grind lower at the open ... and wa la! We have another Nervous Nelly Shakedown serving our bullish gratification with the promise of more good things to come...

OEX 5-min

(Starting Monday ... barring a collapse twice as bad as this week's ... the 10-day OEX price grid will go back to 5-point increments. When was the last time that happened?)

Today's slow, yet decided build-up of relative strength ... leading to a price-RSI confirmation extending over a week of sideways trading in a range with a rising bias ... is positive indication the advance off bottom on Friday, November 21, 2008 is but being corrected.

Does this development mean we shoot higher immediately? Not necessarily. The current corrective period could continue for some days yet. But even in so doing, there might be a continuation of this week's upwardly sloping bias...


Today's "outside day" — occurring on particularly disturbing employment news, ending a week filled with more disappointing economic statistics than any self-respecting Nervous Nelly could shake a stick at — might be signaling positive follow-through on Monday.

Then again, though, a much bigger outside day unfolded on November 13th and on relatively elevated volume. Yet, that was a day, too, on which 5-minute RSI presented a curious quandary upon the day's low being set. No such puzzling, 5-minute RSI performance today, however. In fact, quite the opposite.


It's curious how volatility remains relatively elevated when, as I noted above, the trading range over nearly the past ten days can be seen as narrowing. Also curious is the fact indexes finished near their highs on the week, yet Monday's gap higher in the VIX remains unfilled. Fear evidently persists.

The present condition, now versus late-November, appears somewhat similar to the late-March versus early-March period. There appears doubt in the prospect the market can advance any further here. As you can see, though, under similar technical circumstances the market bolted higher in early-April.


Here again we find a similar technical condition as existed earlier this year when indexes were advancing.

So, taken in context of an Elliott Wave view assuming bottom is in, the market's technical condition on several fronts appears encouraging.

One point of caution I find lies in OEX open interest. Calls still exceed Puts by over 40,000 contracts. Although this has remained relatively unchanged over the past few weeks since I first speculated on its implications, no narrowing of the spread between open Call and Put contracts is one reason to suppose any further advance from here might be sold, much as has occurred following the market's advance off its bottom in late-November.

That's why I marked up the daily chart of the S&P 100 above as I did. Just to be clear, it's only an educated guess, which I hope goes without saying...

Fast Money
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