Precious Few Investors Will Not Be Caught With Their Pants Down ~ The Risk Averse Alert

Thursday, May 22, 2008

Precious Few Investors Will Not Be Caught With Their Pants Down

Experience reveals it is a rare moment when virtual certainty about the stock market's imminent fate prevails. If you have been at the game of investing for as long as I have, then you understand how precious a thing "certainty" is. It is a sense as rare as air on the moon.

Those of you who have been reading my musings over the past couple months know I am careful to convey a reasonable tone of diffidence. I am generally mindful not to pound the table about anything.

Still, the stock market very much appears on the verge of a meltdown. I believe the next few weeks stand to be the ugliest seen on Wall Street in several years. And as much as certainty is possible, I am, in fact, quite sure of it.

This might be new news to you. So, consider my confidence ... look closely at the opportunity I am freely presenting ... and make this blog your Memorial Day weekend assignment. A low-risk opportunity to turn chump change into something you can use to help make your life beautiful is here.

To those of you who already know the plan here is where we stand...

Save providing a great opportunity to initiate an OEX Put position, trading today was a favorable follow-up to what has thus far transpired this week. What I want to see now is really quite simple.

OEX 5-min

First is selling taking the S&P 100 decidedly below Wednesday's (5.21.08) low. Then, a recovery right back to the area in which the S&P 100 traded today. You should get a feel for the potential dimensions of this via the lines drawn on the above chart.

This could all happen tomorrow. I would very much like to be positioned before the upcoming long, Memorial Day weekend. However, I will let the market decide when to say when.

What's really good to see at this point is nothing suggesting this week's turn lower is anything but a pause in the stock market's advance since the March 17, 2008 low.

Now, this might strike you as odd. You might think I would prefer seeing growing signs of underlying weakness.

Truth is it's the perfect set-up for a bloodbath. The path is being left wide open for maintaining such disbelief as sustains complacency well into an accelerating decline.

So far this week, top to bottom, the S&P 100 has fallen 3.5%. However, scarcely a dent has been made in those various technical readings reflecting the underlying state of the stock market I have presented here recently.

Indeed, anyone other than an Elliott Wave Guy might take this as a sign of strength. And who knows? Maybe it is.

Yet, if the stock market is on the verge of collapsing, then is not this seeming show of "strength" rather to be expected? After all, since when does a majority of the stock market's vested interest act accordingly prior to a heart-stopping crash?

NEWSFLASH! When the stock market sells off sharply, most players are caught with their pants down.

We are seeing precisely the measure of oblivious disregard for danger that perfectly sets the stage for an unmitigated disaster. Last Friday's "You Are Here" looms large.

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© The Risk Averse Alert — Advocating a patient, disciplined approach to stock market investing. Overriding objective is limiting financial risk. Minimizing investment capital loss is a priority.

Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.

Nothing is set in stone. Nor is the stock market's path of least resistance always known. More often than not, there are no stock index option positions recommended.

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