Panic Alert! ~ The Risk Averse Alert

Tuesday, October 27, 2009

Panic Alert!

Just the other day I mentioned one lesson learned last year: the stock market is a place where capital can be quickly raised when need be.

Another lesson learned in 2008: when investment bank CEOs give reassuring assessments of the present, still volatile state of things, it just might be time to panic! Isn't that right, Mr. Schwartz?

Well, believe it or not, today, the man who says, "no one foresaw last year's financial crisis" (care to buy a bridge?) said, "the risk of financial Armageddon has passed."

(By the way, Mr. Dimon, congratulations for going on record with the most ridiculous statement one could possibly make at a major top. They say success is not made by what you know, but rather who you know. I see what "they" mean.)

SPX 5-min

Per possibility top is in ... you see above how the Elliott wave count entertained over the past week evolved to complete wave v of 5 of C of (B). Wave 4 — a complex Elliott corrective wave — ended in the range of the fourth wave of one lesser degree (i.e. wave iv of 3 of v of 5 of C of (B)). Wave 5 was a fifth wave failure. All very standard Elliott Wave Principle formulations.

Yesterday's sell-off appears all the more a crushing blow followed by today's miserable trade. Once again, though, RSI might be suggesting a bounce is near. However, if top is in, chances are any bounce will be limited (quite possibly bounded by what could be a head-and-shoulders neckline drawn above). Likewise, RSI's apparent improvement during today's trade might only represent a balancing of buy-side and sell-side interests — the sort of thing one should expect during a still-unfolding wave down.

Judging by what has come to pass since top, a first, second and third wave of five waves down appear to have unfolded. At present, then, a fourth wave is seen forming. If this is correct, then one might expect RSI to better yesterday's best reading (registered during the formation of the second of five waves down) before the fifth of five waves down unfolds.

This view is all very tentative, so let's see what develops. Looking out some days we might find major indexes trading at levels quite near where each presently stands, as this yet-completed, initial move down is being corrected. In the process we should see various technical measures further setting up the stock market for an old-fashioned beating with an ugly stick.

As mentioned yesterday, some technical measures are at levels where over recent months the market has reversed higher. Supposing top is in, though, we might see these measures deteriorate further than has been the case over recent months. This would be seen subtly signaling the beginning of the end, wherein a wicked decline then would appear closer on the horizon.

Fast Money
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