Investing Constantly Proves Misery Loves Company ~ The Risk Averse Alert

Thursday, March 26, 2009

Investing Constantly Proves Misery Loves Company

I'm an analyst who in forming an outlook assesses the sentiment of the world around. Depending on an individual's or an institution's connection to the the stock market, expressed sentiment affects my view. I prefer little company because widespread consensus typically is wrong.

Prior to writing yesterday's commentary I found on the bound analysts who are in the pause camp. Their thinking is the market has come so far off bottom it is time for a break — a consolidation. This sentiment is something of a consensus right now. Late today, Fast Money trader Joe Terranova echoed this same view, indicating he is even selling Calls right now.

That is why I continue keeping an Eye Toward the Sky. This despite Cramer elaborating in substantive fashion my same view believing the bearish trade presently is on the ropes. Although we both suspect the market could rise much further from here, Cramer — like many other analysts — seems to believe there will be a pullback first, following which will arise an opportunity to go long the market ahead of shorts being forced to cover their positions.

Myself, I believe the greater bulk of what remains in the market's current charge higher could unfold over the next two days.


Again, put on your Mr. Big hat. What better way to entice the fish you wish to feed than giving them the weekend to think about nothing else but their appetite for stocks, now that the market clearly has taken flight?

Now, if I am correct, it is possible the market could advance by upward of 10% on Friday. It's probably a good bet volume would be beefy were this to actually happen. That's the point of the volume analysis drawn above. As you can see during the market's February decline peak volume came nearer the bottom. During this month's advance peak volume might register during the next burst higher ... which could come as soon as tomorrow.

That is if both Cramer and I are correct in our view toward the short side of the trade. He agrees with me ... shorts are being squeezed.

The point where I diverge from Cramer rests on prospects for an imminent pullback. I believe shorts could be put in a vice on Friday. Given this week's squeeze ... following two weeks straight a rising market, and now week three ... how wise would they be remaining short the weekend, going into end of quarter whose third month has been a bloodbath for their position?

It could be a turkey shoot. If there's no one else you're reading who's suggesting this, you might choose this moment to raise an eyebrow.

Needless to say I presently suppose that even if this possibility does not come to pass — even if the market loses ground and makes the score: The Crowd 1; Me 0 — Mr. April OEX 390 Call remains safe and likely will find a still more profitable exit point within days.

RSI and MACD — measures of momentum — are seen reflecting a rising emotion appreciative of upside opportunity. It just so happens some not insignificant portion of this can be affected via a short squeeze.

There's something else to think about... The size of short interest. All reasonable considerations of its skewing aside (due to the trade in long-short ETFs), the larger part of short interest existing because of absence of an uptick rule makes for a larger avalanche of buying when the same herd runs to cover.

So, NYSE short interest — reported to have grown 11% in the two week period ending mid-March (and at the time reported here to have been well-hedged via OEX Call options) — is seen vulnerable to attack ... as it has been already. The question now is how much more? We should know better tomorrow.

Fast Money
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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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