Resilient Desperation ~ The Risk Averse Alert

Tuesday, October 22, 2013

Resilient Desperation

Let's return to last week's outlook attempting to put into perspective the market's bounce off its Wednesday, October 9th low...

The S&P 500's relative strength surge late in the day on Thursday, October 10th was thought likely coinciding with formation of an Elliott 3rd wave higher—typically, 3rd waves are the most "dynamic" Elliott wave. So, by the close of trading on Wednesday, October 16th it appeared the 5th and final wave higher off October 9th bottom was nearing its completion.

Then came last Friday's open (Oct. 18th) and bankrupt wards of the state who double as usurpers of legal justice (no doubt out of dire necessity), flush with Confetti, ramped the S&P to the effect of lifting the index's relative strength (at 5-minute intervals) beyond its peak of October 10th. This raised the question of whether the 3rd wave higher, thought to have unfolded into last Monday's late-day peak (Oct. 14th), might instead have begun its ascent off the late-day low on Tuesday, October 15th, precisely one week ago.

Trouble is coincident momentum (see MACD, bottom panel) has been, and continues to be, seemingly failing this view. Its best was registered eight days ago during formation of what last week was thought the 3rd wave higher off the S&P's October 9th bottom. Indeed, we see the same momentum failure today, too, coincident with the index's relative strength having at today's open yet again surged to a higher high than any reached since October 9th bottom.

So, with regard to formation of 5 waves up from October 9th, we might be looking at a "5th wave extension" unfolding since last Tuesday's afternoon low (Oct. 15th). It's entirely possible, too, this 5th wave completed today, or is very near completing.

Taking to a weekly view of the S&P 500 we return to comparison of the present moment with prior periods when the index's technical state was similarly situated. No change in the weather, or in our anticipation of imminent weakness. All we see technically is a 3rd wave's typical dynamism manifest in a resilient S&P 500 defying the index's deteriorating relative strength and momentum. (Our view holds this "3rd wave" is forming wave (c) and is set to complete the market's counter-trend advance off March 2009 bottom.)

All told, then, seemingly expanding technical dynamism evidenced in the S&P 500 at 5-minute intervals—a mixed picture, as indicated above, raising likelihood some Elliott "c" wave [higher] is forming off October 9th bottom—meets a longer-term view of the S&P 500 that still is foreboding. Appreciating just how insolvent is today's banking system, we can more easily swallow the ongoing ruse suggesting it is anything but, as well as understand the need to do whatever it takes to sustain the illusion of its solvency via extraordinary machinations forcing capital into the bottom of the capital structure. We might conclude, however, the more they try to maintain appearances, the more desperate the situation likely is, and suppose the relative strength picture at 5-minute intervals rather vividly exposes this truth.

* * * * *
© 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!