Stocks: Bottom NOT in Yet!

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 no high volume follow-through advances to confirm any of the big up days since the crash landed earlier this month. The leadership profile also remains bearish, with 18 stocks making new 52 week highs versus 205 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 62, showing some modest pullback in fear. The primary Elliott wave count suggests a wave 5 of 3 meltdown run is slated to land anytime soon as wave 4 counter-trend advance stalls and reverses into what should see one more crash to major new lows for the stock indexes.

Traditional seasonal trends have us looking for a rebound following a capitulation collapse in the 4th quarter, 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:

The up/down violent trading action was in play once again this week, with this one ending nearer the top of the recent trading range. The technical set-up calls for the bulls to be handed yet another beating that their complacent: "The bottom is in!" mantra deserves. Bear markets are all about crashing moves followed by straight up advances as the bulls get tricked into believing the bull is back. While we don't claim perfection, we did lock in some profits on the big dip earlier in the week, while adding new short positions as the sucker rebound unfolded. We would have liked to lighten up more on the dip, but one thing about the current volatility is the big moves offering very little chance to get in or out of positions. Since the close on Friday was the fourth consecutive up day, we are very confident that next week should see a reversal of this week's gains. Yes, it's election week. Yes the European central bankers will cut interest rates. Yes, it's the start of a new month. Despite all that manipulative potential, our technical work says the best the bulls can hope for next week is some sideways churn, though our confidence level is super-high that the week will end in a victory for the bears no matter what happens earlier in the week. Not even the famous rebound off the 1987 crashing lows - a favorite of the buy-and-hold crowd - went higher from this position without falling in one last gasp five wave plunge. And that was only a correction within a secular bull market. This is something much more dire, and real. When our indicators say to buy we will buy with both fists and then some. But first we get to see how the financial markets handle the next capitulation plunge...

Kevin Wilde, Chief Trading Strategist, AlphaKing.com

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