Black Holes are to Shemp as Black Ops are to This Cynic ~ The Risk Averse Alert

Tuesday, September 09, 2008

Black Holes are to Shemp as Black Ops are to This Cynic

Another hectic day at the office. Volume once again was huge. True, I did not correctly guess Monsieur Market would be hitting Cramer's linoleum floor so soon.

I did see it coming, though. But I was thinking the celebration of Wall Street's LBO of Treasury might find some greater willingness among traders to lap up yesterday's champaign ... at least enough to bring about a relatively flat day today.

The champaign, however, apparently went bad ... and so there was nothing left for Monsieur Market to do but fall flat on his face.

No doubt, yesterday's triumph of the stock market's generals (making up the Dow, the S&P 100, etc.) over the Naked Cowboy of Times Square (NASDAQ) was as fine a barometer as one needs to gauge prospects in a financial environment fairly called dysfunctional. But with so many GSE bailout naysayers coming out of the woodwork, I thought it best not to pound the table.

Little did I know ... now that Treasury is piloting its very own Bernanke helicopter ... time's a wasted at Goldman Sachs and Morgan Stanley, particularly in a financial landscape where jewels are ripe for the stealing ... right Cramer?

(Why does a cynical observer see crocodile tears being shed over black holes? Is this because what's really going on might better be seen as black ops?)

So, where does today's thrashing leave things? Not so quick to slip away, I think (believe it or not)...


Oddly enough, the NYSE Composite is trading well below its July '08 low, but the differential between new 52-week highs and lows is remarkably holding its own. Obviously, selling taking the NYSE Composite to a new low for the year is broadening. Yet at the same time July's dogs apparently are September's trading opportunities supported by a mountain of sideline cash.


And not only is selling broadening, it is doing so at an increasing rate rivaling the greatest periods of selling in all of '08.

A couple things I take away from this. First, the broadness of selling is reaching an extreme typically indicating the unfolding decline is not long from ending ... which is not the same as not far from ending. Much as I indicated in Assessing Technical Strength and Weakness last Thursday, you probably can bet the market's present decline will be near its bottom when a divergence forms in this technical measure. You see this at the July '08, March '08 and November '07 bottoms.

The second takeaway simply touches upon my longer-term outlook. The market is sick, and days like today confirm this. Yet all things taken together also support the view I expressed last Friday ... where the market probably will remain weak over the months ahead, but will refrain from sliding into oblivion. This is what I was driving at in comments speculating index 200-day moving averages might act as a barrier during these early days of a bear market that prospectively began last October '07.

Circumstances supporting this longer-term outlook also might be extrapolated in the near-term. That's why I am careful not to get too excited about today's decline.

No doubt, there appears more selling still to come. And who knows, there might be a day or three whose impact on indexes is worse than today's. But must this unfold immediately? Might it be delayed until next week, particularly considering how positively this week began?

Most definitely ... but not at all certainly.

Here is a chart of the NYSE Composite, so you can get your bearings on the two charts presented above...


Did anyone else notice Shemp took down Larry, Curly and Moe from his Wall of Shame? Does this mean FNM and FRE now are buys? All I know is neither of these companies has legally entered into bankruptcy ... and both enjoy a lifeline from the U.S. Treasury that's only limited by the debt ceiling. Do you know of any other companies trading for a buck having been afforded this luxury?

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!