Seeing More Blood in the Streets ~ The Risk Averse Alert

Monday, January 05, 2009

Seeing More Blood in the Streets

Vote this leading stock market expert at FeedTheBullWere Friday's analysis projecting a mini-collapse on point, then it seems today's trade could have been a lot more negative than it was ... particularly given the start. I mean, Henry Kissinger rang the opening bell on the NYSE for Godzilla's sake! Just what the exchange needed: another dark cloud.

Then again, talk about your symbolic indication the fix is in. Tories just don't come more status quo — more same old, same old — than Dr. K... Media and politicians, bought and paid for apparently, carry out their assigned tasks in a diversionary operation — masking an ongoing swindle ... making all eyes turn to the fall guy, Bernie Madoff — and wha la, the market finds legs.

Indeed, there was a good deal of underlying strength revealed, today...


A bit of a shocker... The market was positive for all of about an hour today. Yet advancing issues handily beat out declining issues on a day major indexes traded largely in the red. Interesting.

NYSE 5-min

The real killer of mini-meltdown prospects was today's move to new, post-bottom high ground. This suggests five waves up from last Monday (12.29.08) are but the beginning of some larger move higher, rather than the end (much as I feared Friday).

Of course, this is no certainty. Yet two straight Monday mornings of "abandon ship" trading ... rapidly resetting RSI from a buy-side to a sell-side bias ... in a manner decidedly sharp and "unbalanced" ... leads one to suppose the setup might be much the same. A strong move higher could be in order once again.

Indeed, the steepness of today's RSI transition from buy-side to sell-side strength indicates such certainty — such urgency — as is rarely rewarded. So, my mini-meltdown thesis — born of a cautious, risk averse outlook supported by bearish technical divergences — appears strained.

As you can see from the markup I have drawn above, there still could be a strong wave of selling sweeping over the market before the melt-up I have been anticipating unfolds (no "mini-meltdown" projected here, but the selling could be nerve wracking nevertheless).

So, here's a heads up. If we see a bullish price-RSI divergence form as wave c of 2 completes, look for Trade Notification from me. I will be going long ProShares Ultra ETFs again, after profitably closing out the same positions last Friday.

NASDAQ 5-min

Pretty much the same story told by the NASDAQ Composite. We additionally see the index's gap lower open was "filled" en route to a new, post-bottom high being reached. This suggests the issue at the open was not a matter of there being a complete absence of buying interest.

That's a good thing to see when on the horizon an upside explosion appears in sight.

I'll not go into detail tonight, but the greater bulk of technical readings I evaluate are well-positioned for the market's prospective melt-up. They're where you would expect them to be just prior to a launch higher. Although some measures remain at critical inflection points, today's trade indicates something of the same condition noted in How to Measure Blood in the Streets persisting. Selling urgency (as revealed by 5-minute RSI above) amidst improving conditions — seen both by rising stock market indexes, as well as positive underlying technicals — is a bullish anomaly.

So, get ready for a melt-up...

Fast Money
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