Reversal Rally May Come Soon!

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 in September and October. The leadership profile also remains very bearish, with 46 stocks making new 52 week highs versus 2,576 stocks making new 52 week lows.

The 4% rule remains negative, while Federal Reserve policy remains positive. The VXO volatility indicator closed the week at 76.2, starting a new spike up in fear, though still shy of the spectacular number that suggests this bear plunge is over. The primary Elliott wave count suggests a wave 5 meltdown remains underway, with today's pop a minor wave iv of an expected 5 wave move that should see recent news lows breached on a closing basis. What should follow this wave 5 plunge (to end the giant wave 3 that started in May,) is a mega rally to start a giant wave 4. In other words: still lots of bear to go, though getting ready for a big bounce much larger than we've experienced so far this year.

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:

This week saw the capitulation melt-down we wrote about last week commence for real, and today's snap-back appears simply a partial counter-trend rally within than larger melt-down run. While this melt-down run can see much lower prices for the stock indexes, this is the time to be thinking about where to buy, rather than following the dumb money in believing the financial world is about to end. Indeed, our biggest fear should be missing the entry boat on this very well telegraphed plunge - and thus the stock market take off without us on the expected mega rally headed our way fast - rather than trying to milk every last dime of profit on short positions.

This market has opportunity written all over it. Want to make 20, 30, 50% on your 401K? Then this is the kind of technical set up where that can be delivered, and in very short order (as the shorts get creamed on the recovery bounce soon to come.) So get your mind together over the weekend as to what you want to do on the long side. Staying in cash while the AK Trading indicator remains in sell mode is not the dumbest thing one can do - those bulls who stayed long this year while the AK indicator was in sell mode have that covered - though we plan to move the AK portfolios to the long side on any move to new lows next week.

We have studied bear markets, and there is nothing about this one that says it will break from its traditional breakdown followed by recovery pattern. Wave 1 and 2 were the topping action earlier in the year. Wave 3 was the meltdown that landed in September/October/November (which is still playing out), and thus what should follow the sharp spike down below the October 10 lows is a wave 4 sideways churn trading range pattern with Dow 7000ish as the bottom, and Dow 10,000ish has the top. Do the maths. That's a near 50% rally for the Dow (and you can bet we'll be buying something with a little more Ommph! than the Dow.) Since wave 4s are M shaped rally, pullback, rally, pullback moves - within a very wide trading range over the prolonged periods of time - these near 50% moves should land multiple times before wave 4 is complete. Yes, this will likely end very badly for the bulls - as this great bear is for real - though wave 4s of this magnitude offer tremendous amounts of profits for those looking ahead with a wary eye on what comes next. We expect to act very early next week, possibly as early as Monday. The more red ink we see the more comfortable we are in buying long.

Have a nice weekend.

Kevin Wilde, Chief Trading Strategist, AlphaKing.com

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Bear Market Still Growling!

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 lack of any high volume follow-through days to confirm of any recent rally attempts. The leadership profile also remains bearish, with 49 stocks making new 52 week highs versus 344 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 71, continuing the bull market for fear. Please note the high for this sentiment gauge is a whopping 172 during the 1987 crash, so while we remain at super-high levels, the fear spike may have a lot more to run. The primary Elliott wave count suggests the wave 3 of 3 meltdown run is nearing the end of the crash phase. We believe we are currently in a wave 4 trading range with a fifth wave capitulation collapse still to come.

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:

There are no words to describe the trading action this week beyond WOW! Monday saw the S&P500 up 12%, and then Wednesday saw the worst one-day plunge since the 1987 crash with a 9% pummeling, to be followed by Thursday's 4% rally going into options expiration Friday. What a week. We shorted at the open Tuesday, and then again at the open today. That tell you what we think is slated to land next? Volume dried up the closer to Friday we got. The economic news was grim. Next week is all about earnings, with some really important stocks and sectors reporting each and every day next week. This sets up even more volatility than we experienced this week. Almost everyone accepts we are currently in a recession - about a year after we started on the recession drum - and the question now has moved into how bad is it going to be. Very bad, is our first impression, and one has to look no further than stock market action this year to see what that important economic forecasting indicator thinks about our economic plight going forward.

We have our plan for what comes next, and we should have a giant head's up as to when the expected plunge is nearing its end. We expect things to get worse before they get better. 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 capitulation plunge end game.

Kevin Wilde, Chief Trading Strategist, AlphaKing.com

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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

Weekly Trend & 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 bulls to engineer a 2%+ follow through advance to trigger a new buy from this very important confirming indicator. The leadership profile remains negative, with 20 stocks making new 20 week highs versus 484 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 39.4, continuing the up-spike in fear. The primary Elliott wave count suggests the wave 3 of 3 meltdown run remains underway, with the current sideways churn part of a minor wave 2 prior to the start of the meltdown crashing wave 3 of wave 3. If so, we remain on the cusp of a stock market crash of historical proportions.

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 with what we wrote to start last's update: "WOW!"

The Treasury and FED propose to prevent an absolute melt-down of the financial markets with a $700 billion mega infusion of capital to Wall Street. Congress says YES. Then voters go ape on the notion of bailing out Wall Street and idiot individuals who bought more house than they could afford, with voter resistance forcing one significant portion of Congress - House Republicans - to say NO WAY. OK, but don't the democrats control Congress? Yes. Can't they just push the vote through without the House Republicans? Yes. So why the big deal? Why the stall? If it's so important - saving the financial world from doomsday, and all that - then why not go ahead and do the vote already? Perhaps they fear a revolt in the election, with the dems appearing to use a massive tax and spend program to socialize Wall Street. Not something many candidates would want to run on in 2008.

Politics aside, both the bull and bear cases we outlined last week remain intact, with the reaction post decision from Congress this weekend on the bailout package the Big Kahuna that decides where we go next. An outright crash in the non-too-distant future is well within expectations here, even if the financial markets are to do just fine going forward from a structural sense. Bear markets precede recessions, and once they have run their course those prolonged periods of falling stock prices are followed by prolonged periods of rising prices as the new bulls takes hold. What the debate is regarding the financial system collapsing - or not - refers to a deflationary collapse and economic depression. Heck, we're only at the 20% of loss level for the stock indexes from the October 2007 peak, and 30% is more the norm in cyclical bear markets. Indeed, 1973-1975 saw a 50% bear loss without a depression. And 1987 a 50% loss without even seeing a recession, let alone a depression. With 2000-2002 experiening a 80% loss for the NASDAQ without the economy flipping into recession. So further losses here can easily land even if the bailout package gets the nod from Congress and goes on to proves itself a massive success.

If we have it wrong and the bulls have it right, then our indicators will turn positive and we'll all be heralding the Paulson plan as our savior as the new bulls unfolds and we all get to party again like its 1999. So relax, and enjoy the political spectacle this weekend, and see what the nervous nellies do with the news that is sure to land between now and the open Monday.

Kevin Wilde, Chief Trading Strategist, AlphaKing.com

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Stock Market in Crash Position

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 bearish leadership profile, with Friday's close yielding 61 stocks making new 52 week highs versus 367 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 29.3, showing yet another up-spike in fear. The primary Elliott wave count suggests the wave 3 of 3 meltdown run has begun. Waves 3s are the territory of stock market crashes of historical proportions.

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:

The technical action this week was flat-out horrible. The fundamental news was equally horrid, with Lehman Brothers and AIG both looking like they better get some hard cash soon or else face a bankruptcy filing. Hurricane Ike looks like a summer shower compared to this financial tsunami. The FED meet on Tuesday, but what can they do that they haven't already done or tried? There's not much to add this ghastly set-up, except to reiterate our belief that preservation of capital is an absolute must at this critical, treacherous, juncture.

Kevin Wilde, Chief Trading Strategist, AlphaKing.com

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Weekly Trend and Trade Review

Trader Talk

The short term momentum oscillators remain negative, non-confirming the bullish stance of the AlphaKing Trading indicator. The accumulation/distribution profile remains positive, with zero distribution days since the new buy was issued. The leadership profile remains mildly negative, with Friday's close yielding 65 stocks making new 52 week highs versus 127 stocks making new 52 week lows.

The 4% rule remains positive, confirmed with bullish Federal Reserve policy. The VXO volatility indicator closed the week at 22.6, remaining in the complacency camp. The primary Elliott wave count continues to suggest a wave 2 counter-trend advance within a bear market continues to unfold. If so, the wave 3 melt-down run should start once the near double top, or actual, double topping pattern completes. A move above the October 2007 highs negates this bearish view, and would confirm a new cyclical bull market underway. Such new highs are a very long way away.

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:

Overall we would suggest the trading action this week should be forgotten as meaningless. The news was mediocre - for a change - and trading run on super light volume. Every rally was met with a sell-off, and every sell-off met with a rally. Next week - following the markets being closed on Monday for the Labor Day holiday - should be more normal in both trend, meaning, and volume. While our indicators remain bullish, our overall view is that we are in some kind of bear market counter-trend advance, and as such we believe it is simply a matter of where the stock indexes run into trouble, rather than if they falter. That said, the overall technical set-up ex-volume suggests another big leg up for the stock indexes is the more likely outcome going forward. Don't try to over think things at this juncture, as there simply is not enough information to make an accurate assessment of what comes next. Patience, Grasshopper, patience. And, yes, I will take another cold one to go with that dog. Happy Holiday, fellow workers.

Kevin Wilde, Chief Trading Strategist, AlphaKing.com

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A Weak New Bull Market

rader Talk

The short term momentum oscillators remain positive, confirming the bullish stance of the AlphaKing Trading indicator. The accumulation/distribution profile remains positive, with zero distribution days since the new buy was issued. The leadership profile remains negative, with Friday's close yielding 59 stocks making new 52 week highs versus 153 stocks making new 52 week lows.

The 4% rule remains positive, confirmed with bullish Federal Reserve policy. The VXO volatility indicator closed the week at 20.5, remaining in the complacency camp. The primary Elliott wave count continues to suggest a wave 2 counter-trend advance within a bear market continues to unfold. If so, the wave 3 melt-down run should start once the near double top, or actual double topping pattern completes. A move above the October 2007 highs negates this bearish view, and would confirm a new cyclical bull market underway.

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:

The corrective action and Friday bounce this week continues to signal the Elliott Wave 2 counter trend topping move is not yet complete. A move to, and possibly above, the 200 day moving averages for the S&P00 and Dow Industrials (charts below) is very possible. The positive reaction to news this week - bad news, very bad news, scarily ugly news, mediocre news, and even positive news - of the stock indexes that held support, and even managed a rally off such support, argues strongly that the current rally has much further to run. The close above the 50 days MAs for the S&P500 and Dow Industrials - while the 20 day MAs are in the process of crossing above the 50 days - also argues that higher prices lay ahead. The low volume on the advance does have us worried about this bullish potential, as does the low number of stocks making new highs.

Thus overall neither the bulls nor the bears appear to have a grip on the trend, and this market badly needs some news to move prices away from the current sideways churn. Fannie Mae and Freddie Mac badly need some money from the US government - and soon, AKA this weekend - which could be the straw that finally breaks the bear's backs (at least over the shorter and more intermediate term.)

While we are agressively positioned long - in line with our trend following indicators - the overall technical set-up suggests we remain in a bear market rally, with the question of when the bear returns, rather than if. The overall technical set-up also suggests the rally has further to run. And perhaps the high volume and rapidly increasing leadership and participation can land going forward as the stock indexes trend higher. That is not the usual pattern seen at bear bottoms, but, hey, we'll take what we can get at these challenging times.

Kevin Wilde, Chief Trading Strategist, AlphaKing.com

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Weekly Trend and Trade Review

Trader Talk

The short term momentum oscillators remain positive, non-confirming the bearish stance of the AlphaKing Trading indicator. The accumulation/distribution profile remains negative, with a failure of high volume to confirm Friday's advance as a follow-through day that would have triggered a buy signal for this very important confirming indicator. The leadership also remains negative, with Friday's close yielding 130 stocks making new 52 week highs versus 222 stocks making new 52 week lows.

The 4% rule remains positive, confirmed with bullish Federal Reserve policy. The VXO volatility indicator closed the week at 21.9, moving back into the complacency camp, and remains contrarian bearish. The primary Elliott wave count continues to suggest a wave 2 counter-trend advance within a bear market continues to unfold. If so, the wave 3 melt-down run should start in the non-too-distant future as wave 2 completes.

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:

The stock market advance this week confirms the Elliott Wave 2 counter-trend topping move is not yet complete, though may be very close to doing so. The NASDAQ advance, in particular, looks about done, as all waves appear in place. The Dow Industrials and S&P500 closed smack on their 50 day MAs, and whether they too break out and launch to the upside to mimic what happened to the NASDAQ, or if they stall here and the slide resumes, should be answered early next week. The lack of volume on the rally continues to argue that we are experiencing nothing more than a bear market trap for the bulls.

Our trend following indicators may also get caught up in this fool-the-most-people move, but as trend followers we will gladly trade in line with our indicators. That means holding shorts if the stock indexes begin to slide early next week, or move to the long side of the market on any failure to reverse as a buy signal is triggered. If such a buy signal turns out to be the real thing, then we'll happily make money being proven wrong in our thinking that we remain in a bear market. If such a buy signal proves us correct that the bear is alive and well - by triggering a sell signal soon after the buy - then we'll gladly reverse our positions and accept such volatility has part of the process of making money over the long term using a research proven trend following approach.

The goal is to make a solid return when the trend delivers on a new trading signal, while keeping losses small on failed signals, rather than being proven right all the time. No one, no investment system, can do the latter with any degree of success, and trend following is the next best alternate to having a time machine that can give us tomorrow's hindsight today. The average annual rate of return for the AK Trading Indicator - using the NASDAQ Index to gauge results - is 15% long only (unleveraged,) 30% (leveraged,) and 19.7% long/short (unleveraged,) 35.2% leveraged (from 1973 through the end of 2007.) The average trade is close to 17% on wins, versus 3% on failed signals (unleverged,) 34% on wins versus 6% losses (leveraged.) Thus results since the June 24th sell signal are very much in line with expectations.

We will not act before our indicators tell us to, as there have been many times in history where a new trend change signal was close to being signaled yet the signal never happened, as one aspect of the AK Trading Indicator we like is its ability to only limit signal changes to those that likely matter the most. Annual trading results of all our portfolios are shown in the archives of our Updates between 12/24/2007 and 1/2/2008.

Kevin Wilde, Chief Trading Strategist, AlphaKing.com

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Don't Fight the Tape, the Trend

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 bearish leadership, with Friday's close yielding 67 stocks making new 52 week highs versus 167 stocks making new 52 week lows.

The 4% rule remains positive, confirmed with bullish Federal Reserve policy. The VXO volatility indicator closed the week at 24.3, 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 (i) of wave (iii) 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 the middle part of next week.

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:

The stock market trend in bear markets is one of breakdown to new lows through major support followed by partial recovery bounces back into that broken support, which leads to another breakdown to new lows, with this downward stair-step pattern of lower lows and lower highs maintained until complacent bulls are forced into a capitulation panic that leads to a real or near-real crash. A VIX spike to 40 and above is the indicator that suggests such a final capitulation has landed, as does a completed Elliott Wave Cycle. The action this week suggests the bounce off the July 15 low has stalled at such resistance of broken prior support, and the next down-leg underway. Since the sell-off into the July lows has the look of an Elliott Wave 1, and the rebound thus wave 2, what should land next is the meat of the bear, which should lead to a retest of the 2002 bear lows. The summer rally appears to have stalled, and now August is here, we are fast moving into the very tricky months of September and October, when the stock markets crashing lows are often logged.

The economic news continues to suggest we are headed toward - or in - a recession, and now the commodity related stocks and futures are in full retreat, the financial markets have to deal with imploding bubbles all over the place, with leveraged debt players going belly-up in multiple industries. We are trend followers who would like nothing more than to be buying big here, and writing cheery stories about how things look so great, but that is not the message the financial markets are giving us. When the technicals turn bullish we will turn bullish. Sorry if this is not what you want to hear, but our mission is to keep you on the right side of the trend and to help make you money over time, rather than to entertain or tell you what you want to hear. Capital preservation remains key to the next few tricky months, which have the potential to deliver some very large red ink losses to those who stubbornly continue to fight the trend.

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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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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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Goodbye Naked Short-Selling!

Trader Talk

The major stock indexes enjoyed a big rally today. The NASDAQ rose 3.1% on 2.5 billion shares and the Dow Industrials gained 2.5% on NYSE volume of 6.7 billion shares. The Leadership profile improved somewhat, still just 73 new 52-week highs as new lows dropped to 615, still quite negative.

The short term momentum oscillators are still negative, barely, confirming the bearish stance of the AlphaKing Trading Indicator. We have no new trades at this time.

Positive news from Wells Fargo this morning was the initial catalyst that drove the financials much higher today (on lower volume than yesterday's dip) as well as more testimony from Federal Reserve Chairman Ben Bernanke, who said Fannie Mae and Freddie Mac are well capitalized. Bear market rallies are sharp but short, and we're not convinced today's action in the market was anything to get excited about. In fact, it wouldn't surprise us if this move turns out to be just about over here.

1150 is our short term target for the S&P 500, where we plan to lighten up on our short positions, which should be followed by a larger sideways churn area. There is a slight possibility of a big drop from the 1150 area. The VXO and VIX fear indicators sank much today, and the Bulls in the AAII survey were only at 27% last week, while short interest in the NYSE was at record levels, much of it in the financials and homebuilding groups. SEC Chairman Chris Cox was on TV again talking about naked short selling, and the new enforcement policy, which may have had some effect. He explained that the rules will be enforced immediately in FNM and FRE, plus several major banks, but the SEC will not be concerned with past instances in which short-selling without borrowing shares occured. We're pleased that the SEC laid out a broader plan to later include all stocks. Short selling provides added liquidity and is not something evil. Naked short selling is illegal. Cox also said the SEC now has the tools to ferret out those spreading false rumors in order to benefit their positions, and they will use them. We applaud these long overdue changes.

Chief Trading Strategist Kevin Wilde returns from vacation next week.

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Serious, Long, Bear Market Underway

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 Friday's close yielding 77 stocks making new 52 week highs versus 1211 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 29.9, showing some acceleration 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.

Summary:

The technical ducks all continue to confirm a major bear down-leg remains underway, with an acceleration of the selling landing this week. The 2002 lows remain the downside target for this leg of the bear. There remains zero sign yet of the heightened capitulation selling to signal a reversal to the upside is slated to land anytime soon. All major stock indexes continue the pattern of lower high and lower lows, with Friday suffering yet another high volume distribution day. The fundamentals continue to show consumers hanging on by a thread now the rebate checks have been spent, while at the same time confirming the credit bubble implosion continues to pick up steam, with Fannie Mae and Freddie Mac this week's disasters. While we can expect some volatility of trading as the FED, Treasury, and Wall Street Plunge Protection Team try to prop up the collapsing markets, the numbers of losses involved, and depth of the leveraged debt problems, are simply too large to prevent the bear market from eventually turning nasty. The stock market is severely oversold, and thus due a bounce, though there have been many times in history where this set-up continued with the downtrend that led to a real bonafide capitulation melt-down without any major bounce landing. When the technicals show some signs of a washout of the bulls, or indeed some sign of buy interest from traders and investors, we will change our stance. But so far all investment ducks point in the same direction: WAY DOWN. Be aware of, and prepared for, a genuine collapse going forward. Look to take profits on shorts on any capitulation melt-down, and look to add to short positions on any rally attempt, especially those that touch the 20 or 50 day MAs.

Kevin Wilde, Chief Trading Strategist, AlphaKing.com

For Free charts with trading signals and fundamentals ratings, visit AlphaKing

Major Bear Market Downleg Underway

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 Friday's close yielding 44 stocks making new 52 week highs versus 900 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 26.4, showing some acceleration 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, 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 technical ducks all continue to confirm a major bear down-leg is underway, with an acceleration of the selling expected to land soon, with the 2002 lows the target for the stock indexes for this leg of the great bear. Such prolonged and deep bear phases do not end until we see some form of capitulation selling that results in a rapid melt-down. Sentiment continues to remain complacently bullish, thus no major rebound rally or change in trend from bull to bear is slated to land anytime soon. The S&P500 broke below the March lows, making a new 52 week low in the process, confirming the Dow Industrial's breakdown run of a couple of weeks ago. Low volume on rallies, high volume on sell offs, an expanding number of stocks making new lows, the stocks indexes joining that expanding list of new lows, confirm we are in an on-going bear market of some significance. When the technicals show some signs of a wash-out of the bulls, or indeed some sign of buy interest from traders and investors, we will change our stance. But so far all investment ducks point in the same direction. Be wary of, and prepared for, a genuine collapse going forward, as we believe strongly that we've seen nothing yet, despite the stock indexes being down very hard on the year.

Kevin Wilde, Chief Trading Strategist, AlphaKing.com
For Free charts with trading signals and fundamentals ratings, visit AlphaKing