On the Lookout For a Fifth Wave Failure ~ The Risk Averse Alert

Thursday, October 28, 2010

On the Lookout For a Fifth Wave Failure

Ever since major indexes more or less revealed the possibility that, a "rising wedge" might be forming in the fifth wave position of wave c — this first becoming apparent on October 19th on the anniversary of the 1987 crash, when what I am labeling wave ii of 5 of c completed — something curious is seen occurring during formation of corrective waves within this prospective rising wedge (otherwise called a "diagonal triangle" in the Elliott Wave Principle)...

OEX 5-min

You see this via subsequent action following RSI spikes highlighted above. Fundamental underlying weakness characterizing circumstance behind every advance since March '09 bottom once again is being demonstrated. Call it, "sucker baiting" whose persistently fading power of attraction is seen to be but climaxing in the current instance, as the apparent formation of a foreboding "rising wedge" further develops.

On both the micro scale of the market's advance since late-August, as well as the macro scale of its advance from March '09 to April '10, we have the same hope-filled players who apparently continue believing regulatory authorities swinging the world's most expensive toothpick somehow are capable of getting ahead of the curve thrown by a gargantuan, fraud-rife, insolvent, securities-based financial system. These are among the vast majority whose entirely misplaced, fantasy driven optimism keeps them holding (rather than increasingly selling) the riskiest financial asset of all. As long as false hope can continue being cultivated (freezing dumb deer in the headlights of an oncoming freight train) anyone with a dime to spare is fed as much dead equity as can possibly be offloaded, that capital might be raised by those starved, choking on yesterday's fools gold turned to garbage.

(On this note one wonders whether CNBC's recent exposé on "the secret life of garbage" was meant to be metaphor venturing to sustain today's deep-seeded fantasy about the viability of toxic waste clogging the global financial system.)

So, that's the ground on which we tread — a reality critically substantiated by a wealth of technical measures revealing such weakness as only the most witless Pollyanna can ignore. Indeed, similar conspicuous technical evidence exists even in the realm of 5-minute RSI coinciding with the unfolding over the past few weeks of what appears a "rising wedge."

Never during the greater bulk of the market's advance since early-October (i.e. during formation of wave i of 5 of c) did relative strength reveal such buy-side imbalance as has materialized during formation of corrective waves within this rising wedge. Consider this a reflection of utter desperation hoping to maintain some semblance of order, that time might be bought for raising capital further on the backs of a majority whose past ten years being taken to the cleaners simply is not proving cautionary enough.

Add to this the fact that, coincident RSI during formation of wave iii of 5 of c never came close to matching these corrective wave extremes, as well as fell short of best levels registered during formation of wave i of 5 of c, and the road to the market's final, inconsequential advance leading to its prospectively spectacular collapse is paved...

Be on the lookout, then, for a "fifth wave failure." This would be a perfectly fitting conclusion to that consistent demonstration of underlying technical weakness as has persistently and increasingly been revealed over the past year.

Fast Money
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