Tuesday, September 30, 2008

Stock Market Not Hostage To Congressional Bailout


Today goes some way toward confirming something I wrote exactly one week ago, when I claimed... "The authors of Swindler's List would only be sinking themselves" were a market collapse precipitated.

So, too, in addition to Monsieur Bear Market ... our boy Shemp — Mr. Dow 8200 — also took the day off. Another false sinking victim?

Still, the dangerous game of financial chicken proceeds ... and each new swindle builds upon the last. Fortunately resistance endures.

It is easy these days to get caught up in the media frenzy. Not that their hysteria is without basis... It's just that in my lifetime I have seen so many deceptions. Thus, too, I wonder about the present occasion.

I wrote a comment tonight at "Beat the Press," asking, "Might the frenzy surrounding the bailout be a reflection of the degree to which private finance can effectively blackmail the public, having built up a Ponzi scheme of such incredible proportions it has almost become a laughing game to threaten the pyramid's collapse, while control over the commercial banking system is consolidated, the public is extorted and the Treasury is further looted?"

Think about this. In fact, you might even copy that quote, paste it in an e-mail addressed to your state's U.S. Senate representatives, and ask, "What of this serves 'the general Welfare?'"

My point is Congress could turn up the heat of resistance a notch or three, indicate an intention to pursue a non-compliant course, and stabilize credit markets without spending a dime. The minute talk turns to a bankruptcy reorganization and reconstitution of a National Bank, watch these slime ball financiers straighten up real quick.

Whatever comes of this — whether Congress bends or resists — it appears with each passing day any market stabilization would be but only a temporary reprieve.

Funny how real-world circumstance (fluid as it is) coincides with possibilities put forward by such an esoteric analytical framework as the Elliott Wave Principle. Surely, I don't need no stinkin' Miss Cleo.

Do you remember when the stock market normally would move less than 1% each day? I ask because recent weeks' volatility really has offered no heightened, low-risk trade opportunity. At least not in my book anyway ... that is, other than the chance to bail out of ultra-short ETF positions on Wednesday, September 17, 2008.

I mean, up, down, all around, and not knowing where next is no way to trade anything. Not for me anyhow.

Right now, I am satisfied my plate is clean because methinks I have been seeing things straight. It indeed appears a playable bottom is at hand...


$BPNYA

The NYSE Bullish Percent Index took quite a hit yesterday and did not recover much today (this week's range is circled). Still, in a framework expecting the market to rise this particular measure could not be better positioned.

It is, of course, diverging from the NYSE Composite Index which has been setting new lows. As you know, this is bullish ... well, in this case it appears to be at least moderately so .

I last presented this indicator on Friday, September 19, 2008, following the market's explosion higher off the intra-day low set just one day earlier. At the time the Bullish Percent Index was positioned above 50, and approaching its declining ceiling. Then I said, "Despite positive near-term indications the NYSE Bullish Percent Index presents, it also reveals persistence of a general belief that, stocks are sound investments." Finally I concluded, "this condition is precisely what one would expect just prior to a wicked thrashing."

Given what has happened since, I should say the negative ramifications of this contrarian viewpoint bore out sooner than I was expecting. Still, comparing the NYSE Composite's performance with that of the Bullish Percent Index over the course of 2008, I think the question I asked on September 19th is worth repeating: "hidden behind the mayhem of market action of late ... is this [disparity] not a distinct sign things are not as bad as they seem?"


$NYA

Price-RSI and price-MACD divergences since the July 15, 2008 bottom ... and then again since the September 17, 2008 close ... are, again, a positive development suggesting the NYSE Composite is poised to turn higher.

I know this is not "new news." But because it supports an Elliott Wave view where this week's decline to new lows is neither a show stopper, nor portends a collapse ... and rather substantiates the likelihood an advance up to the 200-day moving average might be in store ... I wanted to confirm the importance of these RSI and MACD divergences.

(For all you Elliott Wave geeks I believe this analysis supports a view where a "b" wave down has formed and a "c" wave up is slated to unfold. "Something is wrong" is a conclusion one might make when a "b" wave is forming. RSI and MACD divergences suggest that, indeed, "something is wrong" with the NYSE Composite's further decline beyond its July 15, 2008 low.)


NYSE 5-min

The question now is whether bottom has been set and has the turn higher I am anticipating begun? Well, I think it has and here's why. There's "balance" in today's lift higher. RSI did not blow out to the buy-side. Although rising firmly to the buy-side (i.e. above 50), RSI did not rush to an extreme reading where "irrational exuberance" is displayed.

Contrast this with the advance from Thursday, September 18, 2008 through Friday, September 19, 2008. Quite a different picture. And we have just witnessed the consequence of this buy-side blowout ... through the abrupt thrashing that followed.

So, right now the NYSE Composite appears it might pullback to 7400-ish, then resume today's move higher. The picture is much the same with other indexes.

What this means, then, is you can call or write your U.S. Senators and tell them the market doesn't need a "Yes" vote on the hyper-inflationary blowout bill...



* * * * *

© 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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Monday, September 29, 2008

Hurry Up and Hyper-Inflate!


Ouch! I did not see that coming. I should have consulted Miss Cleo.

Of course, the Paulson plan's failure in Congress was a fairly easy call. However, I really thought intra-lows set on Thursday, September 18, 2008 would hold.

So, what is implied by such a devastating decline occurring here? And what about new lows being set today?

Per the former question, I suspect those who charge SEC Chairman Christopher Cox is in over his head might have a case. I wonder how much of today's "shock and awe" was a function of the ban on short selling in financials?

Relatively speaking, volume came in rather light today. This is curious particularly given the magnitude of the decline. So, was absence of some greater measure of liquidity short-selling provides one major reason why today's drop was so severe?

Per new index lows being set today... that this is occurring in conjunction with an enraged national mood reflected in Congress probably plants the kiss of death on my melt-up thesis. Let's just say the probability dropped from, say, 30% to 10%.

About today's debate on H.R. 3997 — The Emergency Economic Stabilization Act of 2008...

Using my Mr. Market Twitter, I made an effort to highlight remarks made by representatives who took to the floor of the House of Representatives today as the bill was being debated. If you look into these, what you see is woefully little substantive argument against the legislation. Rather, what you find are more or less ideological objections (this despite free market ideologies held on both sides of the aisle having become largely discredited). None of it really represents an insurmountable barrier to those who promote this legislation, however.

What I am getting at is something probably will pass ... and soon enough to save the day ... at least for another week or three.

Next, consider today's market reaction as a scare tactic. Over recent days leading up to today's House debate, as well as following the bailout bill's defeat, fear mongering has been gaining traction. Just listen to Senator Chris Dodd (D-CT) and Fast Money's Jeff Macke. Is resistance to a hyper-inflationary bailout being softened?

Consider this quote from an article appearing on the OptionsMonster website today:
"Some traders are actually hoping that we close with a big down day, just to force home the point that we need something passed--and soon. The biggest reason for this need is actually in the credit markets, where many businesses and banks may cease to exist by the end of the week if something isn't done."
Of course, Shemp did his part to join the fright-filled chorus. (However, I do agree with comments he made about "protecting your nest egg.")

(For a summary of my reaction to the defeat of H.R. 3997, check out comments I made here.)

Let me be clear. What I am about to say goes for all my commentary...

I never form an analytical view toward the doings in the world without some tangible basis in technical formulations I use to assess the stock market's prospects.

In other words, I stand by what I said when I first concluded the Paulson plan was dead on arrival. Namely, "there probably is no immediate reason to fear a market collapse if Paulson's plan fails to gain traction."

Now, I have no intention of splitting hairs here. If today's decline was not something of a "market collapse," then there never was one!

However, you know my outlook over the next few years. It's over to the left under "Things I Believe." That's the sort of "market collapse" I'm talking about, and I don't see this happening here.

In fact, I will go out on a limb for the record... The probability of an earth-shattering collapse presently developing and rapidly carrying indexes toward levels last seen in 1994 is less than 30%.

The technical evidence supporting this stance simply is compelling.

Go back to last Thursday's post where I presented the NYSE McClellan Oscillator. There I noted how the present period was similar to March '08 when the market was putting in a bottom. The same kind of price-oscillator divergence as occurred at the March bottom is occurring right now.

Price-RSI divergences — comparing today's close versus the close on Wednesday, September 17, 2008 — exist in all the major indexes. Allow me to repeat my concluding remarks last Tuesday (9.23.08):
What I would like to see before any sustained move higher is a fall back toward last Wednesday's close (9.17.08) ... RSI and MACD divergences registering ... and volume continuing to display selling exhaustion. Then, a low-risk trade might be favorably set up...
A fall back toward the close on 9.17.08? Check.

RSI divergences? Check.

Diminishing volume displaying selling exhaustion? Check. (Although this circumstance is called into question by the impact the ban on short-selling is having, much as I noted in Friday's post. However, to my knowledge NASDAQ is scarcely affected by the SEC's short-sale ban. Yet its volume came in quite a bit today, too.)

MACD divergences? Well, only in the NYSE Composite. MACD on all other indexes sunk to a new, post-8.11.08 low. However, all but the NASDAQ Composite still remain above respective MACD levels registered on July 15, 2008.

So, I simply am not panicked here. I guess it helps not being exposed to today's selling, nor to any selling yet to come. I did not, and I will not, lose a dime.

Do I wish I had a position profiting from today's decline? I haven't decided ... been busy waterproofing my boots. There's blood in the streets! It might be near time to wade in for a spell...


This article was written for a fear-filled Congress. The closing quote is a sure giveaway!


Fast Money

* * * * *

© 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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Saturday, September 27, 2008

Sound Guidance For Saving Your 401(k)


As I see it you probably are reading this for one of two reasons.

You are either concerned about your 401(k)'s performance or wondering whether my recommendation of May 10, 2008 has changed.

First, my advice stands. Remain safely invested in a money-market fund offered by your 401(k) plan.

Yes, that's right ... I recommend your 401(k) be 100% invested in a low-yielding money-market fund. Better to be earning 2% than losing ten times that (or more) invested in the stock market over the months ahead.

However, if your 401(k) presently is invested in the stock market, wait to switch out. Some (if not all) of the market's losses since May should be recovered over weeks ahead. Wait until this bounce comes to pass. Then switch your 401(k)'s stock investments into a safe money-market fund.


$NYA

Since January 2000, there have been only three occasions when I altered my 401(k) investment allocations. These have proven to be extraordinarily profitable decisions, indeed.

I believe the next few years could prove excruciatingly difficult for most 401(k) investors. Of course, nothing is set in stone. Yet I suspect most major stock indexes are slated to sink toward levels last seen in 1994.

Bear in mind ... this sort of thing occurs quite naturally in the stock market. So, why not take advantage?

Listen, I respect how investing is not everyone's cup of tea. Still, I believe safely managing a 401(k) is in everyone's interest, no matter how much they know or care about investing.

Trust me, profitably investing a 401(k) ... making safety one's utmost priority ... requires very little attention.

Here is all you need do...

Send an e-mail to:
TGolden21 [at] gmail [dot] com
Subject: 401k

No matter what your interest in investing, I will show you how to turn your 401(k) into a financial powerhouse. You also will discover how my risk-averse 401(k) investment strategy paves the way to building a treasure chest you can tap into right now.

So, get on board! Time truly is of the essence...

* * * * *

© 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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Friday, September 26, 2008

Calm and Calculating Amidst Financial Chaos


Are you worried about the bailout? Do you fear nothing will get done in Congress this weekend and the warnings coming from those whose predictive powers are even worse than Cramer's will come to pass?

Well, relax...



Granted, things are more dire than the whole gaggle of monetarist monkeys appear willing to fathom.

Yet I will bet you anything that, even if Congress does nothing to rescue seized credit markets, the stock market will not be destroyed. Sell off some, maybe. Crash? No, not now.

It's probably a good thing this Risk Averse Alert provides some of the finest insights free of charge. With panic and outrage becoming quite rampant, you might be swept up in the emotion of it all — mesmerized by a media that could put Joseph Goebbels to shame. But you are better advised not to question the sanity of someone so sanguine, like myself!

Simply contrast my present demeanor to earlier this year when things really weren't looking so sparky.

You see, that's the nice thing about being an Elliott Wave Guy. It sharpens the analytical eye toward the fact that, to everything there is a season.

Certainly, the day will come when all options, save an earth-shattering smash, are extinguished. However, the hour is not now. Wall Street's bought-and-paid-for servants in Washington — slaves to the invisible hand — have an agenda to promote amidst this controlled chaos.

(Previous link to the Times of London brought to you by my "inner Henry C. Carey.")


$NYA

I have to be honest... If ever there were any hope the market might still melt up, then bottom set last Thursday (9.18.08) could be the base from which stocks rocket higher. Time will tell.

Now, don't get me wrong. I am not making a hard-and-fast forecast here. Rather, I am staying open to all possibilities the Elliott Wave Principle affords. A melt-up to record highs cannot be counted out.

This possibility likewise is in keeping with the fact nothing is set in stone. Call me a flip-flopper if you must. Such is the nature of the game whose prospects can change in an instant.

Bottom line ... just like yesterday and the day before ... I think the case for anticipating a rising market is fairly solid. I cannot say how soon this advance might get under way. Nor am I even certain how high indexes might rise.

Indeed, indexes could stall in the area they traded from July 15, 2008 - August 11, 2008, then subsequently sink to a new low. This has as much possibility as a melt-up. However, I believe the probability of this happening is rather less likely.

Just look at the above chart...

Price-RSI and price-MACD divergences, 9.18.08 versus 7.15.08, suggest bottom is in. These same measures diverged 3.17.08 versus 1.23.08, just prior to the best rally of the year commencing.

Volume spikes at tradable bottoms have been a trend over the past year, and you know what I always say... That's right, the trend is your friend.

(About this week's volume drop-off... Apparently this has to do with the short-sale ban. Funds trading financial issues that balance positions between the long and the short side have withdrawn from the market. So, per volume analysis, the impact of the short-sale ban has to be taken into account.)


Investors Intelligence

Investment newsletter writers still remain relatively bearish on balance. Curiously, though, the Bull/Bear Ratio is diverging from its July '08 low. I take this as a positive development. After all, someone has to buy for the market to rise. Apparently, more than was the case in July, some are being advised to do just that.


$NYAD

"Connect the dots" appearing above spikes in the NYSE Advance-Decline differential with the chart of the NYSE Composite. In every instance the index subsequently rose further than it had on the day the Advance-Decline differential spiked.

This was true even in the late-November '07 instance. Here, though, is a case where we have to remain alert to the possibility I mentioned above. Namely, indexes could trade up to the range traced from 7.15.08 - 8.11.08, then subsequently sink to a new low for the year. This, no doubt, is possible. However, it does not seem all too likely.

So, despite all the noise amidst credit market chaos, the above measure suggests the stock market is not about to fall apart.

And in support of the still living melt-up thesis ... there's the picture of capitulation I was anticipating in April and May ... bracing for in June and July ... and, finally, announcing on Monday, September 15, 2008 ... the day Lehman Brothers died. That day the NYSE Advance-Decline differential registered its worst reading since the market peaked in October '07. Combining this with the burst in the volume of shares traded and you have the makings of capitulation.

[UPDATE: VIX signals more chaotic days ahead ... suggesting some days will pass as the market forms a base from which it subsequently launches higher.]




Fast Money
* * * * *

© 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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Thursday, September 25, 2008

Legislating Bailout By Chaos


The game of financial chicken appears to have escalated this evening with the announcement of the seizure of Washington Mutual (NYSE: WM). Most startling was learning that, apparently, Washington Mutual's management was not even notified of this action. Bam! Out of the blue. You're done.

Once again, J.P. Morgan - Chase, the financial institution with the deepest ties to the City of London, was there to pick up the pieces for pennies on the dollar.

Does anyone else smell a rat? Could the administration be purposely trying to precipitate a panic? Lord knows, chaos is this crew's mantra. Is this the means by which the Paulson plan is to be jammed down the throats of taxpayers so the next phase of the swindle can proceed?

The friends of Shemp in Congress — compatriots in a hyper-inflationary scheme to drive the nation to economic ruin — not surprisingly are on board with the Bust administration. And what is McCain doing speaking at Clinton's Global Initiative? Stealing votes from Senator Obama? Why not. Mr. "change we can believe in" is copasetic with Paulson's fraud. Some change. Is this what we're to believe in? Rant over.

Monsieur Market, Monsieur Market ... what are you doing? Returning to your August ways? Up today, down tomorrow, and God knows what for some days thereafter?

Maybe so, but a base from which the market launches higher appears to be forming...


NYSE McClellan






The McClellan Oscillator's bounce off bottom last Thursday (9.18.08) was considerably stronger than its corresponding bounce off bottom in March. Still the Oscillator remains on the sell side (i.e. below 0). Thus, pressure can be expected to continue, much as was the case leading into the March 17, 2008 bottom.

Here, too, we see another reason to suppose a retest of last Wednesday's close might be in store. This will present an opportunity for the McClellan Oscillator to diverge and demonstrate underlying strength building.

You will recall I am similarly looking for divergences in daily RSI and MACD to form ... favorably setting up a long stock index ETF trade ... as well as possibly an OEX Call option position, should a "quick hit" opportunity appear a low-risk proposition.

If the McClellan Oscillator's performance in March offers any guidepost, then look for it to rise to the buy-side (i.e. above 0) before the market advance I am anticipating develops legs. In the meantime we might expect something of a July 15, 2008 - August 11, 2008 redux while chaos reigns in Washington...


$CPC

Interesting how the CBOE Put/Call Ratio over the past couple months is behaving similarly to the February - March period. Maybe the market's turn higher will develop even sooner than I presently am supposing?

I was so close to pulling the trigger on an OEX Put position today...

The Put/Call Ratio is displaying the sort of bullish sentiment bias one would expect with the Hope Waxes Eternal Show pumping its $700 billion prize. Believing Washington likely would not oblige, and instead devolve into a freak show ... and now seeing overnight futures diving on the news ... I regret not grabbing the October OEX 510 Put I was eying.

Because this is how I was reading today's advance...


OEX 5-min

RSI's push to a buy-side extreme (see the black dot) presented the first clue this week's selling probably is not over...

(Hmm, look where RSI reached last Friday out of the gate. Coincidence? I think not.)

Then, witness the price-RSI divergence forming into today's OEX peak (see the red lines). This, of course, is very typical when the market is poised to turn lower...

Finally, note RSI's dive to the sell-side (i.e. below 50; see the blue dot). This is unlike what happened last Thursday after the OEX had launched off its bottom and then pulled back. Then, RSI held at 50 (i.e. at buy-side and sell-side balance) on the pullback. This was not the case today, however.

Shoulda, woulda, coulda bought a Put! Oh well.


Fast Money
* * * * *

© 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.


There's an easy way to boost your investment discipline...

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Wednesday, September 24, 2008

Rescuing the Bailout Following Its Fifteen Second Funeral


Hey Shemp! Listen to the 15 seconds between 1:15 and 1:30...



"It has become clear that no consensus has developed to support the administration's proposal. I do not believe that the plan on the table will pass as it currently stands."

Pass this along to Kudlow, will you? He has been consulting with Alexander Hamilton (or so he says) and somehow (mysteriously) the nation's first Treasury Secretary apparently agrees the Paulson plan is necessary.

Oh boy. So, tomorrow the "leadership" gathers to rescue the "rescue" ... or is it bailout the "bailout?" Seems likely some scheme to buy time until January is the best that might come of this, save an intensifying attack from offshore scoundrels (LIBOR).

(A very worthy read, by the way.)

If Henry Clay were Speaker of the House, and not this worthless sack of Pelosi, the Brits already would have heard a loud-and-clear, "BACK OFF!" coming from the U.S. Congress. The City is, after all, where the global financial earthquake finds its epicenter.

Of course, our problem runs deeper than the loss of sovereign control over our currency and credit. But until political solutions address this fundamental issue, instability will reign supreme. The simple matter of greed elevated by the present arrangement has seen to it. And this circumstance, I think, is shaking Congress to its core in the prospect of shelling out $700 bn to keep the infrastructure facilitating it from collapsing.


OEX 5-min

A little "like from like" analysis for you. Might the turn higher I am anticipating be near ... possibly kicking off as soon as tomorrow sometime?

The very public part of the $700 Billion Swindle is over. Time for the Hope Waxes Eternal Show to begin.




Fast Money
* * * * *

© 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.


There's an easy way to boost your investment discipline...

Get Real-Time Trade Notification!

Tuesday, September 23, 2008

Earth to Cramer: The Paulson Plan is D.O.A.


Bi-partisan consensus displayed today during U.S. Senate Banking Committee hearings on the Paulson plan for sending the country into a hyper-inflationary death spiral truly was a thing to behold. In an accelerating game of financial chicken the Congress appears to be finally developing a backbone. Surely, this was the deeper meaning of Senator Clinton raising the specter of FDR's Home Owner's Loan Corporation (and on CNBC of all places!) as I viable alternative to Treasury's plan.

So, it bears repeating... Paulson's bailout scheme is by no means a slam dunk.

The panic on the Street is palpable. Shemp's claim a Treasury bailout will stop foreclosures dead in their tracks is a sure giveaway.

Seeing this, then, there probably is no immediate reason to fear a market collapse if Paulson's plan fails to gain traction. The authors of Swindler's List would only be sinking themselves. This is the message Congress appears to be sending.


$OEX

Volume came in again today, so not only is selling exhaustion being demonstrated, but so too is the claim I made above being substantiated.

If the prospect of Paulson's plan failing in Congress really mattered to the Street, there was every reason today to shovel shares onto the market like tomorrow might never come. Yet this did not happen despite bi-partisan unity in apprehension to what the Treasury Secretary is proposing. Why?

Because given the mood of the Congress at the moment, the Street would only be signing its own death warrant.

Now, I see Buffett is buying himself a preferred stake in Goldman Sachs. Overnight futures are jacked.

Yet with the bailout drama moving to the House Financial Services Committee tomorrow (Wednesday), it is doubtful the market is about to launch beyond last Friday's peak, although I continue to expect it will eventually.

What I would like to see before any sustained move higher is a fall back toward last Wednesday's close (9.17.08) ... RSI and MACD divergences registering ... and volume continuing to display selling exhaustion. Then, a low-risk trade might be favorably set up...


Fast Money
* * * * *

© 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.


There's an easy way to boost your investment discipline...

Get Real-Time Trade Notification!

Monday, September 22, 2008

Those 20% in Gold to Prove No One Makes a Dime Panicking?


You may have noticed I added a link to CNBC's Fast Money at the bottom of each day's post. I often find the traders' comments instructive. I thought you might, too.

Tonight, Pete Najarian presented an interesting historical observation of the VIX (chart appearing in Friday's post). He indicated when the VIX remains above 30 (which, of course, it did again today), you typically can expect big swings in the market over coming days.

I'll embed the clip here today if you care to watch the entire segment...


Fast Money

Of course, I mention Pete Najarian's VIX intell because it fits the view I maintain at present. Big swings in both directions — essentially trading sideways — would satisfy my outlook. This week could be a lot like last week, with its fair share of excitement and a market going nowhere ... only in a narrower range.

I am more confident, too, last Thursday (9.18.08) might be bottom to a nice bounce with a good bit further to go. Shemp has his crew selling 20% of their stock portfolio and getting into gold. What a panic.

I will give you this... today's surge in crude oil was a real hyper-inflationary eye-opener ... not only a harbinger of financial crisis, but social crisis as well. I understand this potential has little regard for elections, too. In fact, some, I'm sure, would just assume they be canceled. So, watch Senator Clinton. If she goes down, then listen to Cramer.


$OEX

Today's contraction in volume is an encouraging sign. It indicates selling exhaustion, suggesting last week's capitulation was the real deal ... at least for the present moment.

One other thing worth noting is OEX open interest. For the first time in I don't know how many months Put open interest exceeds Call open interest at the start of the new front contract (Oct '08). I take this to mean strong-hand longs in the underlying (i.e. stocks in the S&P 100) are adequately hedged. This is bullish.


OEX 5-min

The question, I think, is how soon might the market burst higher, taking the likes of the S&P 100 to its 200-day moving average and possibly through it?

I'd like to see a price-RSI divergence first ... like happened last week when the index bottomed. This, of course, is neither necessary nor essential. However, it would help confirm both last week's bottom and raise the possibility a further rise is imminent.

* * * * *

© 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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Friday, September 19, 2008

Swindlers List and the Game of Financial Chicken


Tonight, let's connect the dots and see how the London - New York - Washington axis of swindle might influence the market...

Where do we begin? Where's dot #1?

Here it is. Right between the lines...





Remember that one? The headline I added was, "President Bush Predicts Market Chaos." It's too bad investment banks are floundering. The guy could have had a future as an analyst ... maybe pen a column under the pseudonym "President Bust" ... calling it, "Sight on the Future Through a Wink and a Blind Eye."

Funny, because you might recall I also wondered aloud whether the administration was, indeed, sanctioning chaos. Of course, this possibility apparently has not been obvious to anyone but expert connect-the-dot players ... in whose company we now find the former Lehman Brothers ... victims of Tory intrigues codenamed "Swindler's List" (list - noun: a careening, or leaning to one side, as of a ship).

Nothing like a little chaos to make the Congressional "leadership" more pliant than a Hefty Trash Bag (and not worth much more, as well)...

So, continuing our journey ... we find over at dot #2 Senator John McCain making his break from the White House ... er, uh, I mean, for it ... with a rightful show of support for the victims of regulatory ineptness.




Time will tell if the law of [vote] supply and demand will bring the same vitriol directed at the CFTC...

But what a refreshing coincidence "Maverick" is going after Chris Cox and the SEC ... and on the very day it kissed Mother England's FSA.

I like what I see ... all the more because I am reading Mr. McCain might be circling the wagons for a political battle royale. This bailout thing is by no means a slam dunk.

I mean just look at dot #3... Here we find Tory Left and Tory Right both on the same page...




Oh boy. Is that smoke I smell? Where's the fire Jack? "Un-presidential comments," you say? You might better put a sock in it. You give "the man's" hand away.

Still, connecting the dots I am not at all inclined to panic. It is well enough right now to think the better part of the market's rally probably is over. Look at it this way... With so much in flux and even more at stake here, one might reasonably expect continued pressure. At least that's how I read trading today in financials...


XLF 5-min

Quite a rush for the exits after the open. Maybe Treasury's attempt at creating a market for otherwise worthless securities is not such a good thing by "mark to market" accounting standards. Truth is, too, Merrill's CDO markdown a couple months ago did not halt their trouble.


$OEX

Price, RSI and MACD all are in a position suggesting the market is by no means out of the woods. Of course, this could change in another day like the last two. However, considering the S&P 100's technical alignment in conjunction with this politically charged moment, here too (like the XLF above) we see reason to expect pressure.

But, again, with so much at stake and everyone and their grandmother on the case, it's just hard to imagine things slipping away.


$VIX

History suggests the possibility of volatility increasing further is unlikely. However, supposing we are in the midst of an economic breakdown crisis (something much larger than a mortgage securities problem, Mr. Paulson), the rate at which volatility comes in might be restrained over the near-term.

So, by this measure we might expect more or less directionless, sideways trading ahead, holding indexes well above yesterday's intra-day low. This might turn out being a [prolonged?] consolidation of the past two days' gains, which, once it's over, leads to a surge higher.


$BPNYA

You can read about the NYSE Bullish Percent Index here. More than half of all issues trading on the NYSE are giving "Point and Figure buy signals." Truth be told, like Sergeant Schultz, "I know nothing ... NOTHING" about what this means.

However, hidden behind the mayhem of market action of late ... is this not a distinct sign things are not as bad as they seem? So, what else do I need to know?

How about this...

Despite positive near-term indications the NYSE Bullish Percent Index presents, it also reveals persistence of a general belief that, stocks are sound investments. Consider this in the context of the past year's trading and the current moment's profound tumult. Things hardly seem to be getting better. Yet you wouldn't know this by the NYSE Bullish Percent Index.

So, beyond presenting a positive near-term indication the market probably is not about to fall apart, longer-term the NYSE Bullish Percent Index might be seen presenting the face of irrational exuberance. Being alert to Elliott Wave possibilities suggesting the next couple years in the stock market could be quite rough, this condition is precisely what one would expect just prior to a wicked thrashing...


Fast Money
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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.


There's an easy way to boost your investment discipline...

Get Real-Time Trade Notification!

Thursday, September 18, 2008

Paulson Performing Pavlovian Experiment At Cliff Edge


Bottom to the S&P 100's decline since 8.11.08 apparently is in. Some might be greatly relieved by this, but their joy could be fleeting. Whatever scheme government authorities cook up, chances have grown astronomically complacency — something, indeed, bordering on euphoria — soon might be crushed like a bug at a picnic.

The panic in Washington D.C. is quite startling. Yet, judging by the faces, Paulson's dogs gave little hint of salivating at the prospect of a treat served up in the form of a federal revitalization project targeting Hank's old neighborhood. Congressional leaders appeared none too thrilled with Pinky, the monetarist monkey, and his sidekick Benny.

Friends, this thing could turn ugly fast ... even if everyone lives and the election goes off without a hitch.


$OEX

Judging by the huge, positive bid on overnight index futures, today's big "outside day" might just turn into a massive "outside week." This might bode well for a move up to the 200-day moving average possibly by next week ... and bring us right to the edge of disaster much sooner than I thought likely ... even as recently as yesterday.

Failing to legislate confidence — failing to address the true cause of growing financial turmoil: an economic breakdown crisis — and coming on the heals of this week's stunning moves to the exits, something precipitating a selling avalanche might be days from bursting onto the scene.

Beware!

Fast Money
* * * * *

© 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.


There's an easy way to boost your investment discipline...

Get Real-Time Trade Notification!

Wednesday, September 17, 2008

The Real Crisis is Not Seeing the Madness of Crowds


Is that blood in the streets I see? So, does smart money run with the stampede?


$IRX

And when was the last time panic-stricken herds bolted into T-Bills? Oh look! March 17, 2008. Does that date sound familiar?

(The "2.00" you see in March is a 0.20% yield. Today, the "flight to quality" trade was so profound, Treasury was selling 3-month Bills yielding 1/100th of a percent! Sick. Literally.)

I will say this... Possibility I highlighted in Guaging the Stock Market's Selling Avalanche Risk received a boost with today's trade. However, a terrible collapse probably is not imminent. But for that someday in the not-too-distant future, today's shades of panic appear a taste of things to come.

Shemp, too, suddenly is quaking. He thinks it's like 1987. 1987! Are you kidding? This is not even close.

He talks about "fear" ... "no confidence" ... and repeated, "selling probably is not over" about a hundred times tonight.

You want a bell signaling the market is near a turn? Listen to "macro man" Cramer. 6:00 p.m. CNBC. Whatever "big picture" perspective you're fed, laugh like a hyena, then run the other way.

All I know is the trend is your friend...

(I will say this, too, Cramer. You should have stuck with your bottom call on financials ... at least the XLF ... at least for a trade anyway. I know ... your rep is being crushed by those white-shoe darlings of yours, GS and MS. But these two are more an albatross around your neck than they apparently are the ETF.)

So, what makes me so sanguine? Simple. Divergences.

First, let's look at the Big Board...


$NYA

Here we see a new low in the Composite Index for 2008. Yet RSI still is diverging from July. Ditto MACD.


$NYAD

Today's divergent Advance-Decline differential (relative to just two days ago) is something I recently wrote about in noting how bottoms in July and March likewise coincided with similar divergences. Just to be clear, this is not conclusive evidence today marks "the" bottom. However, it suggests bottom is nearer than most imagine right now.


$NYHL

This measure really surprised me. I thought it would blow out with today's hard move down out of the gate this morning, and then again during the last hour. Yet, the divergence from July in NYSE's new 52-week Highs versus Lows differential continues.

This circumstance simply supports my view, foremost founded on Elliott Wave analysis, that the stock market is not about to collapse. In other words, despite superficial appearances presented by falling market indexes (and a whole lot of hysteria in the media), the market's underlying condition remains relatively resilient.

Here's the same view of things on NASDAQ. I'll let you draw your own conclusions...


$COMPQ
$NAAD
$NAHL

C'mon... It's a no-brainer!

Need more calming? Alright, look at sentiment...


$VIX
$CPC

Good lord. Do you see why I closed out my ultra-short, index-tracking ETF positions today at the close?

(This is something I will be talking more about here in the future. It will give me something more to say, since I trade options rather infrequently.)


Fast Money
* * * * *

© 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.


There's an easy way to boost your investment discipline...

Get Real-Time Trade Notification!