My Analytical Ace in the Hole: The Magic Eight Ball ~ The Risk Averse Alert

Wednesday, February 04, 2009

My Analytical Ace in the Hole: The Magic Eight Ball

Vote this leading stock market expert at FeedTheBullTrue story. I won't bore you with the details about how I got to where I am about to take you, but I thought I might find some fresh direction there. I got what I was looking for.

Of course, I am talking about the Magic Eight Ball. Who needs a Q ratio when there's a forecasting tool that answers your every question!

And so, I began asking...

Is November's stock market low in jeopardy?

ANSWER: Definitely

So, the Magic Eight Ball apparently sees 3600 in the Dow's future, too. I didn't ask for confirmation. I had other, more pressing concerns...

Will the market melt-up when Treasury announces its banking system bailout next week?

Once again it's answer was, "Definitely."

Concerned about the Magic Eight Ball's reliability (having given the same answer back-to-back) I asked...

Does Congressman Gary Ackerman (D-NY 5th District) love the SEC?

(At the time, I was watching the House Financial Services Committee Investigation into Madoff Allegations. Congressman Ackerman was less than cordial in his questions to SEC representatives.)

ANSWER: Outlook not so good

Just like that I knew the Magic Eight Ball would not mislead me. Now it was time for real answers...

Does the CBOE Put/Call Ratio suggest February Call buyers will be bled dry?

ANSWER: No way!

Well, that came as a bit of a surprise. I wasn't expecting it. Yet I knew what next I needed to ask...

Then, there's an interest loading up on Call options because they are about to push the market higher?

ANSWER: Definitely

That's all I needed to know. The manner in which I should look at most likely near-term possibilities ... decided by the Magic Eight Ball.

Thus, too, I can more confidently say that, inasmuch as yesterday's advance lacked underlying strength, today's decline was not accompanied by any notable measure of underlying technical weakness.


Now I see what the Magic Eight Ball knew! We'll have to keep an eye on this.


It's a colored line overload! None of them sets anything in stone. They're just curiosities.

The red lines contain the prospective 2nd wave of 3 waves up (a-b-c) from the November 21, 2008 low. They contain what has been a more or less sideways trade since the initial, high-volume launch off bottom.

The electric guacamole green line defines the neckline of a prospective, inverse head and shoulders bottom I wrote about on December 16, 2008. Looking back, my pointing out a suspicious lack of volume when the neckline was penetrated December 8, 2008, indeed, proved noteworthy given January's pullback.

There's possibly another neckline to a larger, prospective, inverse head and shoulders to which the S&P 100 might be poised to rise. If there's anything to this, we should see volume really pick up as this neckline is penetrated. If this in fact comes to pass, the S&P 100's minimum objective would be north of 560. And what do you know! That's right in the mid-September range where we have long been expecting resistance.


Funny how a prospective turn higher in the market coincides with a moment when volatility appears poised to subside in such a way as would move the VIX below its 200-day moving average.

If, indeed, the Magic Eight Ball is to be trusted, we just might be laughing all the way to the bank...

Fast Money
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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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Anonymous said...

Hey TC,

I've been with you on the bull side since November, but I'm switching sides for the following reasons:

1. Blue chip stocks making new lows - ex. PG, MSFT
2. US Dollar is in a definite uptrend, I don't think markets can sustainably rally while USD is gaining.
3. Looking at the P/C chart, I come to the opposite conclusion. I've never seen retail anticipate a big move and I want to be on the opposite side.

I agree with you that volume has been drying up at these levels, completely. But, if we make new lows I think volume could return with vigor as a whole new batch of sellers emerge.

Good Day, Sir.

Paul Davis said...

Perhaps...but maybe just as there are lack of buyers in cash market, there are lack of sellers(put buyers)in options market. When the melt-up occurs, we may see buying escalate at same time options players (and maybe they are same people, simply hedging) buying puts.

Also, note that early October damage that took averages down 20% lasted 5 days....5 days! I am waiting for same scenario to occur on upside. Who knows what will be catalyst, but looks to me as if it is all setting up to drive avgs violently upward to 200 day MA, coinciding with late-Sept resistance.

TC said...

Defy the Magic Eight Ball? Madness! How can such sound analysis as it alone generates be ignored? Question the reliability of its conclusions based on a company that can send a product like Vista to market, make hundreds of millions of dollars, and do this without even having won the Westminster Dog Show? That's Crazy Eddie INSANE! But, then again maybe my fundamental sense about Microsoft is mistaken. Who am I to say? Yes, who am I? I took this question to the Magic Eight Ball and discovered Microsoft's fate...

TC said...

Paul, I totally agree with the possibility of a 20% pop unfolding over a period of days.