Austerity Ghouls Haunt for Red October ~ The Risk Averse Alert

Thursday, October 11, 2012

Austerity Ghouls Haunt for Red October

Go[l]dman Sachs' Lloyd Blankfein today called the Fed "courageous" for its bailout of the banking system. Truly, a man in the know. Confirmation, too, the Fed to be sure is gambling, as I said.

Austerity ghouls know nothing about investment. Cut national defense? Brilliant. Expose yourselves enemies of the state on top of incompetent! Already long-waning industry securely locks the nation in the vicegrips of a debt trap, and these curmudgeons call for yet deeper cuts in the nation's industrial output capacity, begging a jellyfish Congress gut spending on defense. Really? Better see these merely gasping dinosaurs approaching their extinction, as without this necessary event it seems the United States' leading brand of well-defended, transparent, western capitalism otherwise risks being gravely diminished submitting to the prescriptions of a Vampire Trio such as these. Once a front for "shitty deals," ever a front it appears...

Why not consider a rising wedge whose 3rd wave peaked in September and 4th wave has just begun to form? Wave c of 3 certainly was a "rocket ride" and wave b of 3 certainly alternated from wave b of 1, both much as the Elliott Wave Principle's "alternation guideline" would advise one anticipate. Likewise, evidence of alternation in momentum (bottom panel), wave 3 versus wave 1, is exactly as I described it yesterday. And yet, still, exhaustion is confirmed with fading momentum every step of the way higher so far in formation of a rising wedge off early-October 2011 bottom.

Its angle of ascent now established with September's completion of its 3rd wave, some months forming this rising wedge's 4th and 5th waves now appear in store. As you can see, it will be some months before the NYSE Composite Index, conforming to this rising wedge's upper boundary, will exceed its peak of 2011, as should occur. In fact confirmation of a 5-3-5 "zig-zag" up, all the way around, rather requires the NYSE Composite Index reach a new high off its March '09 bottom, how ever minimal. This will take some time, if the above Elliott wave count proves out.

Now it seems wave 4 of (c) rightly should see both relative strength and momentum weaken in relation to that registered during formation of wave 2 of (c), March-May 2012. Using the "alternation guideline" to set wave 4 of (c) expectations, too, might the worst of wave 4 come sooner rather than later, as contrarily occurred during formation of wave 2. So, a quick trip back to the rising wedge's lower boundary—its trend line off October 2011 bottom—could be on the table making for a nasty October in keeping with a previously identified volatility trend on schedule to explode.

Here's the NYSE Bullish Percent Index printing at the same level as preceded May's market decline, this with the NYSE Composite Index likewise trading right about where it stood just prior to succumbing in May. The Composite Index, too, traded higher in September than was reached earlier this year, yet suspiciously saw the Bullish Percent Index decidedly lag, failing to confirm the Composite Index's advance. Exhaustion thus again is confirmed, here in a long-standing, consistent trend going back to successive market highs reached over the duration since 2010. Exhaustion all the more decisively revealed above upon September's completion of wave 3 of (c) thus reasonably sets up for a period of softness rivaling May's.

There's that dynamic line of support-resistance in the S&P 500 going back the 1960s, around which third waves have turned. The 3rd wave of wave (c) of A pierced below it when Lehman Brothers collapsed in September 2008.

Assuming a "rising wedge" is forming wave (c) of B off October 2011 bottom, the S&P 500's dynamic line of support-resistance should fail decisive upside penetration, then.

Still more tempered, too, is last Friday's "Heads Up on a Higher Market," especially seeing momentum exhaustion only but further displayed as the market drifts higher off its October 2011 bottom. This circumstance instead supports probability a rising wedge is forming, and so the S&P 500's now long-term dynamic resistance should cap any further advance over months ahead, as well as prove a point from which the market sinks into a tailspin sometime in the not too distant future.

Fast Money
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