Leaving No Stock Market Investor Behind the Curve ~ The Risk Averse Alert

Friday, March 20, 2009

Leaving No Stock Market Investor Behind the Curve

Let me begin by summarizing why a strong move higher in the stock market is likely to unfold sooner rather than later.

Quite simply, you could not ask for a nicer setup than exists right now...

NYSE 5-min
NASDAQ 5-min

As you can see, a price-RSI divergence of a different sort than I typically highlight has developed over the course of the market's advance these past ten days. Here, we see higher price lows coincident with lower RSI lows.

Look at this [remarkable] condition this way. If there were a great deal of excitement and widespread positive sentiment following the market's nearly 20% advance off bottom (something you would expect were the market near a top), do you suppose buying interest would more rapidly evaporate subsequent to each new surge into still higher ground? No! Of course, not. Rather, you would expect increased interest anticipating further advances resulting in greater balance between the buy-side and the sell-side.

Instead we are seeing precisely the opposite. Why?

Because belief in positive prospects remains thin. And this condition makes for witting converts who will be won to the bullish side of the trade only after the market moves still higher.

Investors Intelligence

Are you kidding me? Talk about "behind the curve!" Again, you could not ask for a nicer setup. The majority of investment newsletter writers remain bearish. There's no need to worry about who is left to "buy into" any further rally in the market. They pretty much all are.


Oh my goodness. Such fear following Thursday's and Friday's tiny pullback in broad market indexes! This is mint. VIX behavior these past two days suggests, near-term, any further market advance will be met with considerable skepticism. Perfect.

Alrighty then. Let's have a look at reasonable upside prospects...


Expect another 15-20% higher before any serious resistance develops. My upside target in the NASDAQ Composite (in the vicinity of 1750) was detailed last Friday. Contrarily, the NYSE Composite might struggle to reach a new high for '09 during its anticipated, upcoming advance.

Hey, did you hear this week marked the first time since last May the market was positive two straight weeks? Hard to believe. It's little wonder, then, sentiment remains so negative.

Of course, presently constructive circumstances could change in an instant. Yet considering what appears a fine setup for a further, broad market advance, I decided on Friday to enter what I believe is a low-risk options speculation. This position (April 390 OEX Call) ventures to score a quick 200-500% ROI. Given presently elevated volatility, opportunity to exit the position with premium remaining relatively intact (should conditions unexpectedly deteriorate) makes for ability to set a relatively liberal stop-loss.

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.

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.

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