Wall Street Stumbles into British Empire Bankruptcy ~ The Risk Averse Alert

Tuesday, January 20, 2009

Wall Street Stumbles into British Empire Bankruptcy

Odds today's selling continues over days ahead are about as near zero as you could hope for. Mercifully, all the blather coming from commentators whose world ended last year should go away. (Financials were no less bankrupt two weeks ago than they are today.) In all probability an explosive rally is moments from sweeping over the stock market.

This truly is one of those instances where Patience Pays. That's because a decline entirely in the realm of possibility has proceeded as projected and appears to have completed precisely as one should both expect and demand.

Today's collapse appears only to have further deepened the bear trap characterizing trading over the past two weeks. Sure, it is true stocks can fall of their own weight. Yet considering how plainly ... and how suddenly over the past two weeks .. the sell-side of the trade has come to dominate ... well, you can either take this moment as an opportunity to think like a billionaire ... and let it be ... let it play into your hands ... or sell into a trap. Because that's what billionaires are doing: they're sitting back. That's why volume has dropped off. They're saying, "Come to Papa."

Don't get me wrong. If it appears I go out on a limb speaking with certainty, the evidence backs me up. Likewise, any view toward some future probability can change in a day. Yet today, I am here to report, my view didn't change one bit. The technical case continues supporting the probability of a melt-up.

NYSE 5-min

Here you see typical price-RSI behavior. Last Thursday's RSI spike — bettering the previous Thursday's RSI peak — marks typical fourth wave RSI behavior relative to RSI registered during a second wave.

Being wave c of (b) has been forming these past nine days, RSI coinciding with wave 5 could even fall below the worst RSI reading registered during the formation of wave 3 (last Wednesday ... and Monday before that).Typically, though, RSI registering during a fifth wave will fall short of that registered during a third wave ... much as thus far has been the case in the present instance.

So, today's dud — another "sorry, no buyers" start to the day ... resulting in another steep RSI thud ... another manufactured imbalance — sees RSI behaving typically. Indeed, for the sake of the case calling for a pending melt-up it would be constructive if improving underlying strength persists. Yet being a "c" wave is forming ... and given this wave's character thus far ... there's a chance RSI could collapse to a new, extreme sell-side low. It could happen tomorrow ... at the open seems most likely.


Daily RSI's downward acceleration today ... on diminishing volume ... on volume no where near its elevated levels of late November ... the last time RSI was this weak ... has but one impact on my view. It confirms it. The steep dive RSI took today on diminishing volume is a dead giveaway today's decline simply was allowed ... indeed, encouraged.

Those crafty British! Manufacturing a banking crisis at a most curious time in our nation's history ... when the first of a race they first enslaved was to become President. Crafty limey slime buckets handing the stock market its worst Inauguration Day loss in history. I should have seen the filth coming.

Now bring on the uptick rule ... and let discussion of strategic bankruptcy begin.


Well, lookie there. The more easily moved NASDAQ is holding up relatively better than the Big Board ... just as it should prior to a melt-up. Surely, the businesses trading on NASDAQ need financing, no? So, where's the fear rattling the big name financials? 'Nuff said.


Sorry... not buying into September-October volatility repeat thesis. Look at it this way. The financial crisis is closer to being effectively addressed now that its political cover has left on a helicopter and a wheelchair (good one, Darth!).

So, in as much as Friday's VIX collapse was a concern, today's surge contrarily is rather encouraging.

The velocity of RSI's ascent rivals the mid-September period when Lehman Brothers entered into bankruptcy. Yet the worst for the moment in our unraveling financial crisis clearly appears set to be decisively addressed (rather than momentarily papered over with a wall of money and a wink). So, what gives with the "nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance?"

That's all today's selling was (as will be any follow-through tomorrow morning)...

Fast Money
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