Private Equity Sideline Cash Awaiting Chaos? ~ The Risk Averse Alert

Tuesday, February 03, 2009

Private Equity Sideline Cash Awaiting Chaos?

Like I said Friday, it's possible indexes could trade within last week's range before advancing to the upper end of where they've traded over the past few months. That's my first takeaway following today's advance.

There certainly was nothing spectacular about the day's gains. In fact, technically speaking, the underpinnings were rather meager. Beyond indicating buying was in no way overdone (thus suggesting more buying could follow), today's modest underlying strength might be telegraphing the possibility indexes could fall short of the upper end of recent months' trading before falling back one last time prior to melt-up.

Or ... instead ... is some gut-wrenching grind around the area of lows set in January possibly in store over coming days ... following which time indexes finally rise back up to the upper end of recent months' trading ... maybe even begin the melt-up phase?


That's what I'm talkin' about.


Considering the market was trending higher from late-November '08 through early-January '09, the CBOE Put/Call Ratio presently seems curiously positioned for a market that has been under some pressure for the past several weeks. It appears an options writers' opportunity to suck Call money into the February contract could be exploited (because, apparently, there's interest on that side of the trade willing to pony up the premium) ... which means the market presently might be poised to go nowhere to slightly lower over coming days.

So, that's the very skinny today. With each passing day I wish I had taken my own advice on January 2nd.

I found interesting Guy Adami's remarks about private equity capital sitting on the sidelines, awaiting clarity in the matter of how the banking system's insolvency will be addressed. I wonder, though, is it waiting for clarity ... or rather ... chaos?

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!


Greg said...

"With each passing day I wish I had taken my own advice on January 2nd." TC

Tom, I always find myself struggling between "patience pays" and "no one has every gone broke taking a profit." I guess the latter is the business way of doing things.

The melt-up is coming, if not this week we'll see it start when the package gets passed by the Senate (or in anticipation of passage). I guess we should take a que on what the fast money traders are saying which is take your profits, get out and wait for your next opportunity.

TC said...

Greg, you hit the nail right on the head with the struggle you identify. Good call, too, citing the Fast Money traders.

One dilemma I face is desiring not to trade like a wild man. On this count my January 2nd outlook is significant because not only was it suggesting I take profits (which I did — trouble is I went long ago a few days later), it also was presenting a prospective opportunity playing Ultra Short ETFs.

Well, we didn't hit it right this time. Next time maybe we will.

Yet, still, this moment speaks for my thinking behind "patience pays." Although we did not hit the [significant] "micro" move [down], we remain on the right side of the trade in the big picture. The market's technical condition continues supporting the outlook for a melt-up.