A Tale of Two C Waves ~ The Risk Averse Alert

Monday, February 23, 2009

A Tale of Two C Waves

The worst week since October 10, 2008 continued today. Oddly enough unfolding that week was an Elliott third wave, too (i.e. wave iii of 3 of C). This time a "c" wave of a "B" wave (of an A-B-C corrective wave from the November 21, 2008 bottom). Soon enough wave C [up] should unfold.

The market's course over the past two weeks certainly was not what I thought likely. Call it one of my few way out in left field moments. You may have heard. Everyone but Bernie Madoff experiences these from time to time.

Trouble is I am 0/2 in recognizing the immanency of both significant third waves down — that of October 2008 and again over the past two weeks. First time simply was a bad miss. Still, I was not long the market. And this time around? I really hesitate to call it a bad miss. My only wonder here is what of the unexpected trade over the past two week can be ascribed to circumstances involving concentration of financial power in too few hands?

Well-healed or not, every man puts his pants on much the same way. Well-healed or not, the majority in either camp possesses no more wisdom than a lemming. Having seen both Bear Stearns and Lehman Brothers squashed like bugs, it's small wonder there's little will to take the road less traveled among a diminished crowd of major players.

This dynamic certainly will work with equal force on the flip side of the trade. Inasmuch as the lemming principle — be it by short squeeze or bull run — was considered two weeks ago the dynamic likely to propel the market to new highs, calendar year '09, nothing about this outlook has changed. Indeed, the past two weeks improves odds this dynamic — working through a diminished crowd of major players — is a force making for the kind of powerful move higher characteristic of the Elliott wave I continue anticipating (i.e. wave "C").

All told, I am not the least bit frightened about the prospect of losing a fortune here.

What unfolded over the past couple weeks is but part of some corrective wave that began November 21, 2008. And I still haven't the slightest doubt about prospects for exiting my Ultra ETF positions at a profit.


Believing "the market will come back" is no unsubstantiated leap of faith here. Although nothing is set in stone for sure, the fundamental reality behind my present optimism remains undeterred. There's still no death wish sweeping over Wall Street. And Uncle Sam is not about to shut down the sugar factory. So, the stock market is not on the verge of collapsing. Major indexes are not likely to be throttled back to levels last seen in 1994, at least not anytime soon.

Likewise, technical conditions — having materially deteriorated in a way virtually impossible to forecast two weeks ago — continue possessing qualities showing improvement over time (October '08 to present) and now display notably "oversold" indications.

I'll work on the charts. Tonight, I simply wish to write and think aloud.

I think the upcoming launch higher could take major indexes back up to their respective 200-day moving averages so fast most heads will spin.

I also think it was a wise decision last October to change "will" to "could" when stating the possibility that, the Dow Industrials could fall to 3600 sometime during the next few years (it's over to the left under "Things I Believe"). Long-term support highlighted Friday is considered formidable in the realm of an Elliott Wave possibility that would have the stock market's ongoing bottoming process lasting another couple years or more (yes, years).

In other words, over the next couple years, the stock market might trade in a narrowing, sideways range taking major indexes only slightly lower than where they presently are.

I think this is a distinct possibility. Should a monster move higher imminently unfold, this likelihood should only grow. All things considered, a reasonable outlook over the next few years visualizes a situation like WWI, featuring lots of bloodshed and little on the ground progress in either direction...

It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way - in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.
Charles Dickens, A Tale of Two Cities

Fast Money
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© The Risk Averse Alert — Advocating a patient, disciplined approach to stock market investing. Overriding objective is limiting financial risk. Minimizing investment capital loss is a priority.

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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