Strong Long Hands in a Battle of Disinterested Players ~ The Risk Averse Alert

Tuesday, March 17, 2009

Strong Long Hands in a Battle of Disinterested Players

More than once today I heard comments on the low volume of trade...


CNBC's Bob Pisani, reporting from the floor of the NYSE, suggested today's advance largely was a function of a seller's strike. Although there was no great demand for stocks, no one was selling. So, prices rose, driving indexes higher.

Fast Money trader Guy Adami offered up the theory that, because so few traders believe in this rally's prospects, the market's advance is being restrained. Seems like sound logic.

Still, indexes rose and closed on their highs ... largely because of selling disinterest (which says something about conviction on the short side of the trade). Yet fear remains so thick the long side remains rather thin. This sets up well for an explosion higher.

Think about it. You're sitting on a mountain of cash and long positions you've thus far established — now showing a profit — are not being seriously challenged. So, why not feed a piece of your winning position and let the market drift lower, reasonably confident the short side is not likely to become emboldened. After all, you believe the reason their position is well-hedged (with Call options) is because they lack either the will or the power to drive prices lower. Knowing, too, the Johnny-come-too-lately, long wannabes are quaking on the sidelines waiting for more evidence bottom is in, you see an opportunity to add to your long position at a reduced price, and at the same time stir wider interest on the buy side once you resume padding your long position. Hey, just like you did today!


As you can see, there is a ton of room for improvement remaining in the NYSE's underlying technical condition. At the same time, there's reason to believe a brief pause might be in order here.

NYSE 5-min

Should the market pull back over coming days look for typical price-RSI divergences to develop just prior to the rapid launch higher I am anticipating. Looks like it's going to be a moonshot. Definitely setting up for a low-risk options trade...

Fast Money
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© 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.

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