Polishing Your Nerves of Steel ~ The Risk Averse Alert

Monday, January 26, 2009

Polishing Your Nerves of Steel

If this market must grind nerves a few days more while last week's low is challenged ... well, then let it be. Indeed, today's mid-day fade suggests we might better brace for this possibility. Apparently, this month's bear trap still designs to deceive more victims.

NYSE 5-min

Today's deep RSI thumping (though reaching no sell-side extreme) simply does not fit the character of a market on track to move higher. That's not to say something devastating is contrarily portended. Not in the least.

Rather, for several days now reasonable possibility has projected the sort of grind we have seen. And still, one final move lower — retesting last week's worst level — could unfold. Today's trading simply appears to raise this probability. No big deal...


Make no mistake, however. The prospective channel you see containing this month's decline? The NYSE Composite Index could, indeed, fall to the lower end of this. This is entirely possible.

Just as likely, though, is a gentle decline retesting last week's low ... falling well short of the "worst case" possibility defined by the channel drawn above.

Judging by how both the NYSE McClellan Oscillator and Bullish Percent Index are at critical inflection points, a better than "worst case" outcome is reasonably anticipated.

Look for volume accompanying a prospective retest of last week's low to fall short of peak volume so far this month (indicating selling exhaustion). Look also for a price-RSI divergence to form upon bottom being reached (indicating buying strength is building).

Then, it should be Emeril time. Bam! Melt-up...

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Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.

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