Saturday, August 4, 2007

Volatility Delivers Wake-Up Call to Financial Sphere

By Joseph Russo

Likely resulting from decades of imprudent financial engineering, the uncertainty-surrounding discovery as to the potential extent of collateral damage from such shenanigans remains immeasurable and unknown.

Similar to the engineers about to embark on months of investigation as to the cause of the sudden bridge collapse in the city of Minnesota - the omnipotent financial sphere is just beginning to access whether or not the minor structural fractures, (which market volatility has so blatantly revealed) could possibly morph into a sudden and total collapse of similar dimension.

The Week in Review:

Highlighting the NASDAQ 100

General Equity Indices Threaten Notable Breakdowns going forward

Friday’s dismal weekly close did nothing to improve upon the numerous technical underpinnings that were riding on last week’s performance.

Although the NDX broke down below last week’s trendline, we graciously offer it a second such boundary to prove itself.

The low close beneath levels of the past seven weekly bars, has evoked a “sell-signal” basis the good old-fashioned 4-week rule. (John Murphy’s Technical Analysis of Financial Markets)

Breadth stinks quite frankly - as all of the major Bullish Percent Indices (including the Dow’s) have flagged sector-wide sell signals upon significant reversal breaches below their overbought 70-levels.

Despite capitulation-optimism surrounding high VIX/VXN readings relative to recent years, historically, the VIX becomes contrarian-bullish at levels above 30. Still a ways to go…

Apart from all of the plausible doom and gloom, longer-term uptrends remain firmly in tact, and at some point, a major reaction rally will prepare for take-off.

Although one should maintain general levels of optimism (after all, the bull is NOT dead yet) one should also be prepared for the absolute worst.

At the pilot’s request, please keep your safety belts securely fastened, and your seat backs in their standard upright positions.

post 2002 - Is volatility attempting to return to historical Norms – AGAIN!

Such question will be answered in due time, and will be contingent upon success of the financial spheres fresh layers of adopted rescue attempts.

In the interim, we continue our own brand of “business as usual.” The chart below documents archived trade triggers, and recent price target captures from Elliott Wave Technology’s Near Term Outlook.

For active traders of all time-horizons, there is no better road map for navigating markets than the Near Term Outlook.

To our knowledge, no mechanical trading systems or algorithms can anticipate directional moves with the agility, speed, and precision rendered by our dynamic method of short-term forecasting.

Re-read “Navigating Near-Term Volatility” for a refresher on just how we forecast and anticipate critical market turning points.

That said - Let’s see how the rest of the majors are holding up…

After a brief peek above last weeks sharp downtrend line, the Dollar reversed sharply lower on Friday - threatening to retest multi-year lows.

The Dow (hands-down market leader since 2002) gave up further ground last week – closing dangerously below its former trading range. Although still overwhelmingly bullish longer-term, the Dow continues to show signs of stress.

Last weeks inside compression bar for Gold, has potential to set-off major fireworks in either direction for the week ahead. Watch the US-Fiat Dollar for clues, and hold on to your hats.

The S&P looks downright ugly! Since it has destroyed its previous two uptrend lines, we shall grace it with a third, and “last chance” boundary to maintain any semblance of upward trajectory.

A special note to current and prospective NTO clients:
Elliott Wave Technology prepares detailed analytics for the major indices each Monday, Wednesday, and Friday - prior to the open.

NTO members who actively trade indices short-term, are encouraged to check our blog-page on Monday and Wednesday evenings - after the close.

These bi-weekly, "post-close" updates will relay actionable developments, which may have arisen during the previous session that may have impact in advance of trade on Tuesday's and Thursday's.

Until next time …

Trade Better / Invest Smarter…
Joseph Russo
Publisher & Chief Market Analyst
Email Author