A Taste of Things to Come ~ The Risk Averse Alert

Tuesday, March 10, 2009

A Taste of Things to Come

There are a number of good reasons to suspect bottom is in. There also are reasons to fear a further, final milking of equity markets (which these days trade more like enterprises on the verge of bankruptcy — save for the fat lady singing — than viable businesses under temporary duress) before a monster move higher commences (the likes of which today surely was but a taste).

One thing would raise the probability melt-up has begun: recovery to levels last seen only seven trading days ago — just prior to Uncle Sam taking a 40% stake in Citigroup on February 27, 2009.

NYSE 5-min

It has been since Friday, February 6, 2009 a day like today was last seen. That is, up all day and out on the high. Extreme 5-minute RSI might be a concern ... were it not for the fact this condition is to be expected at this point.

Things should be much like they were over the duration of the decline since February 9th ... but in reverse. That is, on the buy-side of the trade. To wit, expect violent (i.e. imbalanced) swings in RSI and persistent buy-side pressure. In fact, expect a whole lot of this because the anticipated wave higher is a 3rd wave (i.e. wave C) one larger degree than the 3rd wave lower (i.e. wave c) since February 9th.

Lots of talk about "bear market rallies" ... 20-25% higher. Heard much about the possibility of a 50-75% surge? Do you know what it means that you haven't? The likelihood is no long shot.

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!


Anonymous said...


For what it's worth, I'm all out of my longs and back on the short side.


I don't think this is a reversal and feel that we have some more pain on the short side before our rally back to the 200 day MA.