The Return of Animal Spirits ~ The Risk Averse Alert

Tuesday, December 09, 2008

The Return of Animal Spirits

Might be but one more day's doubt to speak
Then, an historic year of Monetarist Monkey mystique
Could juke Monsieur Market with a little Marek Malik...

(Turning the Shempster from "Wait and See" into a raging bull by the end of the week)...

One interesting development I might just as well have noted yesterday, and find all the more compelling today, is the apparent return of "animal spirits." Where, prey tell, does one find such a beast?

You know where! It's on Times Square ... in a place not so fondly known by millions of burned investors as "The Pump and Dump."

NASDAQ 5-min

Yesterday's gap open, lifting the NASDAQ Composite above levels reached on Friday, November 28th (where concluded the best five days of trading since 1933) ... followed by today's RSI-taming "reset" as the index receded to the top of its gap (where resistance on November 28th now finds support) ... suggests there's a move on to take this bad boy higher.

NYSE 5-min

Curiously enough, from bottom on November 21st to yesterday's peak NYA is up 24%, while COMP has risen a little less (23%). I mention this because NASDAQ typically leads larger moves in both directions. It has been this way for years. (I wrote briefly about this in May and June.)

But from last Friday's low we see COMP has risen about 14% and NYA 12.5%. So, NASDAQ's typical leadership appears to have just begun. You see this, too (albeit ever so slightly), contrasting each Composite index's performance last Friday (12.5.08) as the day's low was set.

We all know how things can change in an instant. It's the very nature of the game. Yet seeing strength building under the covers — this while Elliott Wave considerations argue for the possibility bottom is in — it seems a reasonable analytical stance to argue the stock market might be on the verge of melting up.

Not that we should assume anything spectacular subsequently will come of it. Like I said yesterday and noted over the weekend, chances are any rally catching bulls and bears alike by surprise likely will fade.

If I might say something new here, it only is this. The market's pending rally — indeed appearing imminent — might be a forecast whose certainty is not soon surpassed.

Though long-term I am bearish, I do not expect the stock market's anticipated counter-trend action to end with the next rally. But then again, given today's stunning developments in the land of Lincoln, who knows how soon chaos will reign once again.

Nothing these days should be seen in the framework of business as usual. Nevertheless, the trend remains your friend. Now, you may be skeptical, but in my mind there has been a long drive to discredit the authority of the U.S. government. Given the awful frailty of fundamental economic and financial circumstances, I can scarcely think of any threat more dangerous than shear chaos developing in the political realm. Yet the drive to this end, indeed, might be on...

Fast Money
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sdmikev said...


Interesting write-up as usual. Just wondering what your current thoughts are on the prospects for your December $490 OEX call? Dead and time to escape with what you can get, or do you consider a 10-15% rally in the next week to be a reasonable possibility?

Thanks as always.

TC said...

As always, thanks for your kind regards. I think a huge rally in the next week is a reasonable possibility. Fear and doubt abounds. Seems an opportunity to squeeze the market vastly higher, then feed shares to new-born believers (who, of course, will once again be disappointed) is a realistic possibility. As such, then, I am still holding the DEC OEX 490 CALL. Hope you also got long Ultra ETFs...

sdmikev said...

Yep. Long on SSO, QLD, and UWM since mid-November based largely on your call. I even dabbled on some BGU as an experiment around midday on 11/21. So far, so good. Thanks for the timely contrarian advice/confirmation of some thoughts I was having.

Here's to the market giving us an early Festivus present in the next week or so.