Weekly Trend and Trade Review

Trader Talk

The short term momentum oscillators remain negative, confirming the bearish stance of the AlphaKing Trading indicator. The accumulation/distribution profile remains negative, with a failure of the second 2%+ high volume follow-through advance needed to confirm a new buy signal from this very important trend confirming indicator. The leadership profile remains bearish, with Friday's close yielding 98 stocks making new 52 week highs versus 236 stocks making new 52 week lows.

The 4% rule has turned positive, confirmed with bullish Federal Reserve policy. The VXO volatility indicator closed the week at 24.1, showing some lessening of fear, and remains contrarian bearish. The primary Elliott wave count continues to suggest a wave 3 melt-down run remains underway, with the current wave count wave (ii) of Wave 3, and an out-right crash in the wave (iii) of 3 should land in the non-too-distant future as the wave (ii) counter-trend push exhausts itself.

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.

Summary:

While the rally off last week's near crashing lows has been swift, the internal technical set-up appears to confirm the move nothing more than part of a counter-trend rally within an ongoing bear market. The stock indexes have so far retraced a Fibonacci 38% of points lost in the wave 1 collapse, which is the first potential stopping point for Elliott wave 2s. The 50% and 63% Fibonacci retracement levels are near the 50 day moving averages for the stock indexes, which remain the most likely stopping points for this advance. What should follow - once the wave (ii) ends for real (either here or at the 50 day MAs) - is a bona-fide melt-down run and probable crash in wave (iii) of wave 3. The current rally - which should end very modest, if it hasn't ended already - should be the last chance to exit longs and enter shorts ahead of the pending collapse. Things should move very quickly to the downside once wave (ii) has ended, so any portfolio pruning should be done sooner rather than later, as later may never happen. Capital preservation remains the key to the next few tricky months.

Kevin Wilde, Chief Trading Strategist, AlphaKing.com

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