Caution! Plunge Protection Team at Work

The short term momentum oscillators are positive, in contrast with the bearish stance of the AlphaKing Trading indicator. The accumulation/distribution profile remains negative, confirmed with a bearish leadership profile, with Friday's close yielding 86 stocks making new 52 week highs versus 246 stocks making new 52 week lows.

The 4% rule remains negative, while Federal Reserve policy remains bullish. The VXO volatility indicator closed the week at 25.5, showing some deceleration in fear, though well shy of anything that would signal the sell-off has suffered a capitulation needed to signal a turn positive. The primary Elliott wave count continues to suggest a wave 3 melt-down run is underway, with the current wave count wave (i) of Wave 3, though an out-right crash at this point is not out of the question.

Traditional seasonal trends have us looking for a difficult third quarter for the bulls after a modest summer rally attempt stalls, while the Presidential cycle remains bullish for the remainder of 2008. The Benner-Fibonacci cycle will remain bullish until 2010, though this prolonged time period may include one or more cyclical bear phases. The AlphaKing combination cycle sees a bear market slump running all the way into mid-December when the next major turn-date is slated to land.

It was a wild week in the stock market, with total volume just a bit higher than last week, and one accumulation day. We don't have the statistics yet, but it sure looked like some major short-covering was going on, as the Plunge Protection Team, with all the heavy hitters out trying to forestall a crash, and finally words from the SEC that they're going to crack down on naked short-selling. While we applaud the new enforcement promises, there is no credible evidence that it will keep stocks from falling. We expect the S & P 500 Index to break below 1200, with 1150 our target, to be followed by a larger, sideways churn area.

Chief Trading Strategist Kevin Wilde returns from vacation next week.

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