Trading Like a Company on the Verge of Ruin ~ The Risk Averse Alert

Monday, March 23, 2009

Trading Like a Company on the Verge of Ruin

Times like these, I wish I were a Texan. Then, I could say "Yee-haw" and you'd know how much I really mean it. Are you kidding, up 7% in a single day? The market trades like a company facing bankruptcy!

And there you have it. All my blathering about a grotesquely leveraged, securities-based financial system on track to reek more havoc over the next few years has been demonstrated a rational concern all in one day's time. Go figure.

First things first, however. What began on March 10th in all probability has a lot further to run...


That's more drawing than usual, but if you click on the chart and get a full-screen view, you'll see a remarkable similarity comparing the larger red markup with the green. The conclusion is a counter-trend rally similar to that which unfolded March 17 - May 19, 2008 is seen beginning on March 10, 2009. The NASDAQ Composite's ultimate objective is in the vicinity of 2200.

All positive developments over the past ten days aside, today's subdued volume and continued strong relative strength (RSI) are a red flag. So, near-term, a pause might be in store, retracing 30-50% of gains made since March 10th.

NASDAQ 5-min

Crazy 5-minute RSI performance! Much as I mentioned last Wednesday, the appearance of a buy-side imbalance supports the likelihood a brief period of relatively mild weakness probably is to be expected.

NASDAQ 1-min

Come Tuesday there should be a bit more upside remaining, thus allowing an opportunity to profitably close out the April OEX 390 Call option I picked up Friday. The strong advance that began on March 10th and extended today likely will continue sometime soon enough ... following a consolidation lasting some days ahead. So, I'll look forward to another options play (and hopefully a repeat performance) in the very near future.

Per Ultra ETFs, I continue just holding. There's a ton of upside remaining between now and the end of summer. No need to worry about this long position for the moment...

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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