A Trip Down Memory Lane to the Home of Near-Term Resistance ~ The Risk Averse Alert

Thursday, March 18, 2010

A Trip Down Memory Lane to the Home of Near-Term Resistance

Let's take a trip down memory lane. It was December 6, 2008 and the talk was of near-term resistance...
What really stands out is the volume of shares traded during the week in mid-September '08 when Lehman Brothers failed. Well over 20 billion shares changed hands. It's a good bet a vast majority are underwater. Many who bought stocks that week are showing big losses.

As you can imagine, then, more than a few longs probably are quite nervous about financial conditions remaining extraordinarily tenuous. Surely, many holders will be happy to get out even. In fact, this probably is the safest bet in history!

Thus, the S&P 100 could see significant resistance as it rises toward the range of 520-550.

Let's have a look...


"Near-term resistance" ... here we be.

Now, imagine, presently, an imminent pullback to the 200-day moving average ... then a rather less pronounced advance right back to present levels, taking, say, 2-3 months (rather than the month-and-a half that has transpired since early-February bottom).

Superimpose this image on the chart above and observe how the A-B-C corrective wave off November '08 bottom would simply extend. You get the picture of how time, alone, has been bought as a consequence of the present lift to new high ground, post-March '09 bottom. And, furthermore, you see, too, that this area of well-substantiated resistance is likely to be proven.

Returning to my December 6, 2008 view...
... We should not assume any upcoming counter-trend rally will unfold just like during the January - May '08 period. Indeed, the Elliott Wave Principle's "Rule of Alternation" advises against this.

Bzzzz. Wrong. The counter-trend rally off November '08 bottom has unfolded very much like that of the January-May '08 period! In fact, the like-from-like similarity is uncanny.

Which brings me to two concluding points...
  1. Obviously, my stated outlook often proves incorrect. However, I make no apologies here. Evaluating a finite array of variables so to assess finite Elliott Wave-related possibilities (occasionally throwing in fitting, colorful reads on current events), I believe well-served is your effort to become better informed, so you might more confidently develop your own, certain judgments (whether these agree with mine or not), and as well better understand how critical, technical elements associated with the trading of common stocks might breed such patience as is likely to deliver handsome rewards.

  2. All the more, then — particularly considering the post-March '09 bottom counter-trend rally's marked similarity to that prior, January-May '08 period — does the prospect of an extended period topping, such as I have been highlighting over the past week or so, appear a rather reasonable probability. Presently, consider the moment being like early-May '08, with a pullback and then a final lift to the vicinity of current levels yet in store — a move that, this time around, could evolve over a period of a few months.

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.

Nothing is set in stone. Nor is the stock market's path of least resistance always known. More often than not, there are no stock index option positions recommended.

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