Selling Exhaustion Prerequisite to a Technical Bounce ~ The Risk Averse Alert

Monday, July 05, 2010

Selling Exhaustion Prerequisite to a Technical Bounce

If I might return to Friday's late-day rally lifting 5-min RSI to its best level since 6/21...

OEX 5-min

The truest conclusion one might arrive at does not so much speak of buying strength, but rather selling exhaustion, which certainly is something of a prerequisite if any "c" wave higher is about to develop.

Indeed, if a pending rally were thought strictly a technical affair poising to exploit imbalances (which presently is suspected, expecting the unexpected), selling exhaustion becoming evident offers most welcome confirmation bolstering this probability.

This occurring prior to a 3-day weekend, no less, is just icing on the cake. Apparently, nothing "fundamentally negative" is seen likely over immediate days (like, say, some Spanish bank going belly up). Thus, Friday's demonstration of selling exhaustion appears all the more convincing.

Nevertheless, a final move lower from June 21st peak (as originally was thought likely) might still be in the cards. Friday's demonstration of selling exhaustion occurring amidst technical conditions ripe for recovery only serves to raise one's sight toward a bounce back to current levels should the coming, holiday-shortened week begin with a decline to new-lows, post-April peak.

Were a further strengthening in technical conditions to coincide with this prospective move lower and subsequent recovery, the stage would be set, then, for the better part of wave (c) of (2) higher — a move targeting the vicinity of falling 50-day moving averages.

So refines the view focusing to establish an initial position suitable for my OEX options proposition venturing to multiply $50 into an historic Mega Score.

Time for pressing those beholden to a long disposition who must fail — who will fail — likely will be the larger reason behind every bounce from here on out ... much as similarly was the case from March '09 - April '10. This trend looks to persist indefinitely, and presently could bring challenge to that far larger July OEX put option open interest currently below the market — the contract writers, specifically — forcing this interest to step up and protect its exposure.

Thus, the view put forward here finds circumstances suitable for an offloading of dead equity to an interest with only technical reason for going long. Theirs will not be about positioning for a positive return, but rather attempting to prevent a fatal bloodletting.

Nevertheless, those stronger hands aware equity is soon to be worth a lot less appear at the end of their rope manufacturing such opportunity to offload as this. It is fitting that, such would be circumstance in the weeks leading up to what could prove the greatest financial calamity in history.

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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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