A Jerry Maguire Stock Market Reality Check ~ The Risk Averse Alert

Wednesday, July 09, 2008

A Jerry Maguire Stock Market Reality Check

So, how rapidly might the stock market falls apart now? Could we see another maddening bounce?

I really do not have answers. As you well know, short-term possibilities generally are wide open.

However, per the market being oversold — per a supposedly widening bearish sentiment — my analysis is conclusive.

The stock market is nowhere near bottom.

What some are mistakenly calling "oversold" is rather a reflection of underlying weakness the stock market has been evidencing all year long. As this matters right now, one ought recall the crisis of confidence revealed during the market's bounce from March 17, 2008 through May 19, 2008.

Has this gone away? Has the perception of underlying trouble that kept buying relatively tepid during the market's last bounce diminished in any way whatsoever?

Are we not reading about turmoil still roiling the credit markets? Have not regulatory officials given every indication trouble underlying the global financial system is by no means abating? Have not several of the world's most staid financial institutions (RBS, the BIS and others) come out with some of the most unguarded forecasts suggesting serious difficulties straight ahead?

Folks, everything suggests the free flow of money (credit) the world has grown accustomed to over the past twenty-five years is coming to an end. Have no doubt: money most certainly still makes the world go 'round.

Furthermore, talk is cheap. So, when it comes to talk of sentiment being bearish and the market being oversold I say, "Show me the money!"


"The money" continues doing its best Kevin Bacon in Animal House... "Remain calm. All is well!"

Show me the money, bears! Price it into equity "risk." Once this happens, then we can believe all present holders of equity who are inclined to sell into a falling market have done so. As it stands right now, we might rightly conclude the Volatility Index suggests utter complacency — no fear.


We more or less see the same thing in the CBOE Put/Call Ratio. There has not yet been a moment during the stock market's decline since May 19, 2008 when Put buyers aggressively came in to hedge long positions.

As the March 17, 2008 through May 19, 2008 bounce demonstrated, a market absent buying interest has but one way to go...

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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.

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