Bring Out Your Dead ~ The Risk Averse Alert

Monday, August 22, 2011

Bring Out Your Dead

Until further notice, the following looks to be the theme driving stock trading...

Never shy to give credit where credit is due, Cramer was spot-on during today's pre-market suggesting the open should be sold. Likewise does his sense of the environment going forward very much jive with my own...

Should having such forlorn company be a concern? Not given the market's current technical state. It's ugly everywhere.

No doubt, two weeks spent going nowhere have corrected a number of technical imbalances — extremes reached during the market's hard sell-off earlier this month. Still, before any bid putting a floor under the market materializes technical divergences first should develop, necessarily requiring indexes to decline below their respective, early-August index lows.


Here's a prospective view on a so-called "running correction" forming in wave (2) of C position. Wave a of (2) probably will be a bit more prolonged than is indicated above and result in substantial correction of both RSI (top panel) and MACD (bottom panel) from present depths.

Yet per "Support Turning Resistance, Stat," today's S&P 500 support at 1100, slated to turn resistance when wave 5 of (1) completes over days ahead, should cap any advance during formation of wave a of (2).

The key takeaway from this view, though, is the possibility that, even during these early days of formation of wave C whose five waves target index levels last seen in the 1987-1994 period, a very dead trade could persist. Nevertheless, today's widespread faith in the capacity of lenders of last resort to save the day probably will find those weak hands presently long equities no less willing to hang on right up to the bitter end.

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.

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