Believe it or not, the stock market appears poised for an explosion higher. Despite this week being the best since 1974 ... and the past five days being the best since 1933 ... I am wont to ask: could the most positive week ever be up next?
The negative, fear-filled sentiment prevailing in the retail community seems quite fitting, because it is, indeed, the stuff powerful advances are made of.
Likewise, this distrustful attitude presently pervasive apparently found technical manifestation...
Strange... Didn't the stock market advance today? Why, then, did volatility increase? Could it be there's a prevailing belief the best five days since 1933 must be followed by selling? Apparently, options writers seem to think so. I, on the other hand, am not so sure.
Weren't pre-market futures pointing down this morning? Why, yes, they were. However, judging by how RSI held to the buy-side today (i.e. above 50), this probably was meant to provoke the Nervous Nelly crowd to give up their shares. I would not be surprised to see the same thing on Monday.
Now, you might wonder why there's no price-RSI divergence worth noting, Monday (11.24.08) versus today. Quite simply, it's an Elliott Wave thing. There has been no complete wave form — impulse or corrective — against which to meaningfully apply this seeming price-RSI divergence and thereby conclude the market is slated to decisively turn lower. Rather, RSI suggests the best of the market's advance since last Friday probably is yet to come.
Both the NYSE and NASDAQ McClellan Oscillators suggest the same. You really have to like the fact both Oscillators diverged at last week's bottom, as did both Summation Indexes. (This latter point represents a new development. Just look back over the past year at every instance when the McClellan Oscillator shot higher into the positive. Not once were both respective Summation Indexes simultaneously diverging. This lends considerable weight to the likelihood a rock-solid bottom is forming, if it is not already in place.)
Relatively speaking, I suspect we might see the market more or less trade straight up over the course of the coming week, come what may starting the week off. Today appears to have marked the start of a new phase I am calling "the Nervous Nelly shakedown."
Once this initial launch off last week's bottom completes, look for many a Nervous Nelly to enjoy one last gasp squawking about this and that having more to do with the economy than with prospects in the stock market. I expect they might get a few additional weeks subsequently to say, "I told you so." In the end, however, chances are these people will be abused, much like the long side has been throughout much of '08...
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