Got More Milk, Sucker? ~ The Risk Averse Alert

Tuesday, June 30, 2009

Got More Milk, Sucker?

Might the act of equities levitation be milked until, say, late-August? After all, it's possible the market's advance off March bottom is not yet complete. Such thinking returns to an Elliott Wave view last presented on June 15th. I'll review this in a moment.

What changed today? It was the sudden surge in bearish certainty reflected by the CBOE Put/Call Ratio...


Mighty big spike in Put volume, relatively speaking, given how little the market fell today. Contrasting today's drop with last Monday's (6.22.09), there's really no comparison. Last Monday "figured" to coincide with considerably increased Put buying. Today did not.

Seems options speculators are anticipating some pronounced, start-of-quarter profit taking. Chances are, though, they'll not be rewarded. At least not to the extent some might believe possible.

How many times have I seen this before? Too many to count.

The only caveat I might note here is that, those many former instances were generally occurring in the midst of a bull market. The result was that, soon afterward, the market resumed its advance.

Yet I am loathe to suggest that, a pronounced measure of bearishness occurring now, in the midst of a bear market bounce, might have different meaning and lead to a different outcome. In fact, I rather doubt this.


So, returning to an Elliott Wave view highlighting the possibility that, the market's counter-trend rally off March '09 bottom is not yet complete, here is what we see. Right now, the S&P 500 is in the process of forming its fourth wave of five waves up. And since the second wave was a "simple," a-b-c, "irregular flat," we should expect the fourth wave to be "complex" (this by the "Rule of Alternation").

This leaves several possibilities, all of which should bring the S&P 500 support in the ballpark of 875-ish. This also means the next several weeks could be as dull as watching paint dry. Look for volume to remain anemic, much as has been the trend lately. We might even keep our ears open for the sound of pins dropping on the floor of the NYSE.

Both the RSI and MACD configuration support this view that, the market's advance off March bottom might have a bit more to go. As you can see, both remain (ever so slightly) on the buy-side of their respective ranges.

Somewhere in the vicinity of 1000 might mark the S&P 500's approaching brick wall. Soon enough — quite possibly in August — the index should hit its upper limit, and then, at last, subsequently crater.

SPX 5-min

Well, if it were proper to claim "nothing is set in stone," then the above view might be called a poster child. I hesitate to even include it. I guess the point of doing so simply is to suggest that sometime over days ahead I might want to pare back my UltraShort ETF position, and wait for a better re-entry point.

Per all the weakening technical measures presented lately, there is nothing suggesting these cannot remain bearishly configured for some time longer, while every last sucker dying to be milked is drawn into the market during the formation of waves 4 and 5 of c of (b).

Per so-called "green chutes" raised by today's report of stabilizing housing prices, the problem this conclusion must contend with is the fact that, "stabilization" offers zero hope in a financial environment whose fate rests on the mantra, "Inflate or Die."

Stabilization simply is not good enough. Time's continued passage without even the faintest whiff of mortgage security inflation spells pending doom for a further widening swath of trapped credit market players (got that Mr. Immelt?).

Therefore, someday in the not-too-distant future capital needed to service an ever-larger burden of credit liabilities will need to be raised. And we all know where that will come from. That's when it will again be time to wave buh-bye to Monsieur Market...

Fast Money
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Greg W said...

Hi Tom,

Realizing that we are dealing with a moving target, will you recommend an exit point when we get there? Based on your projections, S&P 875ish looks like the bottom so I wondering if we should start selling once the S&P breaks below 900 and continue to sell on the way down?


TC said...

Hi Greg,

Good call on the "moving target." Since there are several forms wave 4 can take, it's difficult to suggest a specific target for paring UltraShort ETF positions. I like your idea on the S&P break below 900 (with particular focus on the 200-day SMA at 890-ish; this might be the area at which to expect support).

Not wanting to over-complicate the matter, I'm thinking of simply putting the entire position up for sale, then sitting back for a time in cash ... maybe start up that Ark project the weather here on the banks of Lake Ontario suggests might be a wise use of time during limited, stable summer conditions. (That marble-sized hail last Friday was a real treat. I thought I died and went to Oklahoma.)