The Real Crisis is Not Seeing the Madness of Crowds ~ The Risk Averse Alert

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
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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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1 comments:

options in the stock market said...

Great post! You gotta cover your shorts after big moves down. These bulls won't give up on propping this market, why would they? The government has their back!