Bouncing Into Big Trouble ~ The Risk Averse Alert

Tuesday, June 29, 2010

Bouncing Into Big Trouble

About that Citigroup trade at around 1:00 p.m. triggering the newly installed circuit-breakers on individual stocks ... apparently an "erroneous OTC trade" was behind it. Call me a cynic, but one wonders why Citigroup was today's victim and not some other conglomerate whose business combines a deep deposit base with a bottomless pit of derivatives exposure.

OEX 5-min

What you see above via the OEX index — the object of my $50 Mega Score proposition — is depiction of that sense I wrote about earlier today in a letter sent to those who have a stake in this proposition, as well as those who receive Trade Notification from me. To wit, this indicates how wave b of (b) of (2) might yet to have completed. Were today's unraveling but part of wave b of (b) of (2), then wave c of (b) of (2) is likely to carry major indexes considerably below late-May lows, rather than just nominally lower, as was previously supposed.

In other words, wave c of (b) of (2) is not thought to have ended today. The fact that what would be labeled wave b of (b) of (2) proved so narrow and brief discourages belief today brought the greater bulk of wave c of (b) of (2).

No doubt, today produced an Elliott third wave of some sort. Yet whether this likely third wave is fitting even the above view is questionable. Instead, it's possible that, the first, second and third waves of wave a of (b) of (2) have unfolded since last Monday's "Yuan a be a sucker" peak. So, what lies ahead might develop along following lines...


Evidenced today via volume was the measure of selling exhaustion mentioned yesterday thought likely upon a retest of late-May bottom. So, combine this with improving momentum and you have the ingredients for a bounce, or so it seems.

Yet just how impactful any bounce might prove is tonight's wonder. Simply given what appears building vulnerabilities on several fronts whose threatening presence resulted in today's broad decline in stocks, and whose continued negative portent is probability warned by both RSI and MACD remaining on the sell-side of their respective ranges, one suspects any upcoming bounce could be rather muted. Indeed, going into the end of the week there might be some follow-through to today's decline prior to any bounce developing.

The Elliott wave view above shows the same a-b-c structure as previously was thought likely to develop off last Monday's top. It's a 5-3-5 "zig-zag" [down] forming wave (b) of (2). The Elliott Wave Principle's "rule of alternation" raises this form's probability as wave (a) of (2) unfolded in the form of a 3-3-5 "flat."

Again, the only change in outlook here is to suppose wave c of (b) of (2) might extend considerably below present levels, rather than end here (as was thought previously).

NYSE McClellan

The present position of NYSE McClellan measures alerts one to the prospect of something nasty developing near-term.

I noticed this last night and I thought that, in formation of wave b of (b) of (2) through the end of this week (and quite possibly into next week) — this per yesterday's viewpoint — the negative position of McClellan measures would persist before breaking down coincident with subsequent formation of wave c of (b) of (2) [down].

Much as was thought yesterday, this same turn of affairs more or less is what I still suspect probable over the next week or so. Wave b of (b) of (2) — forming with an upcoming bounce — might likely leave various McClellan measures still rather negatively poised.

And finally, the possibility that, wave c of (b) of (2) — carrying major indexes decidedly lower than present levels — might unfold before July expiration remains as credible a prospect as was supposed prior to today's unexpected, sharp turn lower...

Fast Money
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