Two Old Curmudgeon Friends ~ The Risk Averse Alert

Tuesday, June 25, 2013

Two Old Curmudgeon Friends

Bounce time? There's probably still more "work" to be done. Today's effort to stop the bleeding did not surpass that of a week ago Thursday when NYSE advances were greater, and still more blood subsequently flowed. Likewise, the CBOE Put/Call ratio remains above its 200-day moving average, so the free money, now 'til eternity trade still has a problem, no matter how much China might be perceived back on board.

Our old friend the NYSE Bullish Percent Index is indicating "red alert." Its RSI < 30 and MACD sinking into the negative confirms there's considerable underlying weakness threatening to drag stocks lower.

Now, if we assume 5 waves up from early-June 2012 bottom currently find the 4th of these 5 waves forming, we can anticipate typical 4th wave versus 2nd wave technical deterioration sinking the Bullish Percent Index below its mid-November 2012 low. As you can see, there's still some way to go. So, any bounce upcoming, likely to be short squeeze driven (as they all generally have been), in all probability will be reversed.

One unknown per these assumed 5 waves up from June 2012 is the dynamism we might anticipate as the 5th wave higher unfolds. Will there be a melt up of sorts, like that accompanying the market's advance from mid-April to May peak (forming the 5th wave of wave 3), or will we see a 5th wave failure, leaving May's peak intact? Maybe a clue is revealed by the Bullish Percent Index during formation of the 3rd wave higher from mid-November 2012 bottom to May 2013 peak. We see that, typical technical deterioration, 4th wave versus 2nd wave, did not register per this measure as the 5 waves forming the 3rd wave higher unfolded. So, let's keep an eye on this as the 4th wave of 5 waves up from June 2012 continues forming over weeks ahead. Should typical technical deterioration register and sink the Bullish Percent Index below its mid-November 2012 low, then we might anticipate a "failure" as the 5th wave higher unfolds.

Venturing a reasonable guess here we're probably looking at the late-August time frame when it becomes impossible to levitate this garbage any further. Given recent developments surrounding the self-imposed bankruptcy of global central banks, we might rather side with the prospect that, May's peak likely will not be exceeded.

I missed this last night, but our old friend David Goldman is seeing things our way, too. There's a shake up brewing a general [deflationary—duh!] liquidation of financial assets and its consequence first will be better for bonds before stocks see any lasting love. More from Dave here (interesting remarks from Steve Stanley, too) and here.

Word on the Street
* * * * *
© 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.

Nothing is set in stone. Nor is the stock market's path of least resistance always known. More often than not, there are no stock index option positions recommended.

There's an easy way to boost your investment discipline...

Get Real-Time Trade Notification!