Scalping the Rumor ~ The Risk Averse Alert

Monday, July 30, 2012

Scalping the Rumor

Given the moment, today's best Put/Call Ratio since early-June bottom accompanied by a rising price for the pleasure (see $VIX) probably should be thought a demonstration of misplaced optimism exposed willing to be fleeced, this on account of hoped for central bank intervention otherwise proven over the past few years only to accelerate credit market distress and lead to inevitable challenge of the core of the trans-Atlantic banking system. Yes, this is fitting prelude to disaster. Supporting the probability are many other, technically grounded perspectives whose foundation resides in the Elliott Wave Principle.


Without a pressing need to label the 1st and 2nd waves of 5 waves down from this year's peak, we still can consider every element of technical data above to verify that, a 3rd wave down hard is a very real possibility straight ahead.

First — big picture — momentum (bottom panel) no doubt confirms weakness indicative of a top from which the market could decline considerably. "Could" for the moment is well enough. So a 1st wave down from this year's peak and a 2nd wave [up] "correcting" this could be in our midst.

Supporting prospect a 2nd wave currently is forming are the absolute positions of both momentum, as well as relative strength (top panel). Both being positively biased is fitting character of an Elliott 2nd wave, wherein the positive dimensions of the market's advance preceding are flashed. To this add the present state of the 50-day moving average relative to the 200-day.

Now, this latter, moving average perspective might raise protest. How can this be supportive of a dire near-term outlook, such as a 3rd wave down portends?

If the positive absolute and relative states of the 50- and 200-day moving averages were indicative of underlying strength, then why are those behind it giving away their disposition, this by way of the likewise positive states of both momentum and relative strength? Indeed, this disposition is better kept hidden! Just go back to bottoms past. You will see what I mean. Misplaced conviction here, again, is harmonious character of an Elliott 2nd wave [of 5 waves down].

Volume is yet another clincher. Not only is no one seemingly awake to the danger ahead, but complacency is so thick that, notwithstanding the market having given back gains made over the first three months of this year on turnover suggesting stocks were falling of their own weight (on account of a deficit of buyers), its recovery since finds buying interest only the more diminished. Only the combination of added selling restraint and focus on a handful of darlings has bid up the market. As such, weak hands holding on with anticipation for increasing interest stand ready for disappointment as an Elliott 3rd wave down unfolds.

You will arrive at the same conclusion considering the market's advance off March '09 bottom in relation to its preceding decline, the bulk of which occurred in 2008. The very same technical measures as validate prospect a 1st and 2nd wave down from this year's peak is unfolding likewise validate prospect that, a larger 1st and 2nd wave down from October 2007 peak is unfolding. On a larger scale, too, then, is the market poised for imminent disaster. Levels last seen in the 1987-1994 period still remain very much on the radar.

SPX 15-min

Just how soon the market might begin its swoon to such "ungodly" depths is indicated above. Five waves up since last week are seen forming a "c" wave prospectively completing the 2nd wave that, as argued above, has been unfolding since early June. Seeing both the McClellan Oscillator and the NYSE Bullish Percent Index objectively indicate increasing underlying weakness developing coincident with prospective formation of wave c of 2, there is a good chance nasty could be at the door in a flash. (And if on account of a nuclear blast, well, who could doubt the possibility was made only the more real with a whole lot of money and power at grave risk of being swept away, as Glass-Steagall starkly threatens.)

Fast Money
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