All Eyes on the Pump and Dump ~ The Risk Averse Alert

Tuesday, June 16, 2009

All Eyes on the Pump and Dump

Do you remember the chart showing the NASDAQ Composite breaking its long-term uptrend during last year's throttling?

NASDAQ weekly

The thinking was that the index might react back up to that trend line. In so doing technical imbalance following last year's collapse would be "repaired" and set up the market's next leg down.

Well, if last year's performance offers any clue, then the NASDAQ Composite has risen about as far as it will and presently is poised to embark upon the heartbreak phase taking the index sharply lower...


NASDAQ's gap lower early-January 2008 became a barrier where selling again developed once the index had reacted back up to it at the conclusion of the March-May 2008 counter-trend rally.

And now ... just look where the index stands in relation to last October's gap lower. Say hello to my little friend ... another brick wall.

Yet at present the index finds support at another gap — the one occurring on June 1st, 2009 when the CME served a reprieve, temporarily alleviating the threat of underlying weakness that had been building. Now the question is whether this support will hold.

NASDAQ 5-min

Today's trade was a gift. The fact that a new low was set in NASDAQ's decline since last Thursday (6.11.09) indicates five waves down ending yesterday likely are not the last of selling set to hit the Pump and Dump during the present phase of its fade from last October's gap.

However... this is not to say wave (2) labeled above is, in fact, complete. Indeed, I suspect it isn't. Rather, my suspicion is that NASDAQ will be forming wave (2) [of five waves down] over days ahead. In the process the index will, of course, fail to exceed its peak last Thursday.

The same might not be the case with the NYSE Composite (as well as the S&P 100). My contention remains that large cap indexes, like NYA and OEX, have yet to complete their advance off March '09 bottom.

Contrarily, however, it appears COMP has.

Just how close we are to a very serious bout of selling is becoming clear. One final leg of buoyancy appears in store, then Katy bar the door. Over the next couple weeks chances are confirmation of this outlook will build, as will confidence, too, that a ton of money is ready to be made. Confidence is the very life-blood of an investment strategy understanding how patience pays...

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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