Stock Market in Crash Mode

Trader Talk
The short term momentum oscillators remain negative, confirming the bearish stance of the AlphaKing Trading indicator. The accumulation/distribution profile remains negative, confirmed with a very bearish leadership profile, with 23 stocks making new 52 week highs versus 1,103 stocks making new 52 week lows.
The 4% rule remains bearish, while Federal Reserve policy remains bullish. The VXO volatility indicator closed the week at 51.8, continuing the bull market for fear. The primary Elliott wave count suggests the wave 3 of 3 meltdown run has moved into the crash phase, with the next couple of weeks prime time in that regards.

Traditional seasonal trends have us looking for a difficult third quarter for the bulls, 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:

Once again we start the weekly summary regarding trading action this week with what we wrote to start last weeks update, and the week before that: "WOW!"
The Treasury and FED finally got the bailout package approved on Friday, with that success failing to prevent the stock indexes plunging near 10% on the week. If $700 billion recapitalization of the banks is not enough to force the bears to capitulate or the bulls to get excited, then what is out there that can? The economic news remains grim, and that is the real story behind this week's trading action. We're in a crash run, plain and simple. This will probably be over later this month, early next, with this week's terrible action week two of a potential four week meltdown. One key item to keep an eye is the financial crises around the world. European banks are in danger of collapsing for real here - despite $600 billion cash infusion from the FED THIS WEEK! - and their central bankers and political leaders meet this weekend to discuss the crises. Our view remains that we are in a bear market of some historical proportions, with a retest of the 2002 bear market lows our target for this down-leg of the bear. The FED may pull-off a surprise rate cut, potentially coordinated with a worldwide move to cut interest rates. Do not be surprised to see sellers gleefully jump on board any and all rally attempts going forward, even one induced by a surprise rate-cut. While the VIX fear index has spiked to above 50, that contrarian sentiment gauge reached 150 back in the 1987 crash, and this is much worse than that. Thus we continue with our theme that we've seen nothing yet, and capital preservation remains job one. We will survive this, and trend followers who protect capital here should be in fine shape to pick up some super attractive assets once we hit bottom. Buy low sell high, what a concept.

Kevin Wilde, Chief Trading Strategist, AlphaKing.com