Mother Blanking Blank Blankers ~ The Risk Averse Alert

Monday, March 09, 2009

Mother Blanking Blank Blankers

I rather doubt I am the only bullish stock market analyst who, in taking in the view created by persistent selling pressure of late, finds himself reacting with language that's, shall we say, colorful. We'll have none of that here, though.

Allow me to reiterate a sense I put forward some weeks ago. Unless Wall Street (under which banner are lumped hedge funds and private equity) has a death wish, there is little likelihood the stock market at large is imminently slated to suffer the same depth of selling as have financials, generally, up to this point. This simply would not be a politically wise maneuver at the present, Democratic Party-dominated moment.

Rather, a more reasonable forward view imagines little substantive fundamental improvement in underlying market conditions going into mid-term elections, followed by chaos like nothing yet witnessed developing sometime thereafter.

Near-term upside potential in the range of 50-75% from present levels is considered possible within this framework. Given the depth of present bearishness this possibility is, in fact, thought rather likely. Not only that, but the greater bulk of any significant advance is likely to unfold sooner rather than later, allowing plenty of time for doubt and angst to redevelop going into November 2010 (resulting in little substantive improvement from present levels).


A week ago Friday I published a view showing a prospective price channel containing further declines highlighting my "sneaking suspicion this thing might be milked for everything it is worth" before bottom is in. And so it is come to pass.

Today saw a new daily RSI low registered in the NASDAQ Composite coincident with its decline since 2.9.09. This suggests bottom is not yet in. Be that as it may, though, I continue to believe bottom is nearly at hand.

Underlying technical conditions continue diverging from readings registered at November '08 bottom. Furthermore, given how much technicals have deteriorated despite price declines relatively less severe than those registered during last year's fourth quarter ... and seeing volume come in as indexes continue grinding lower over the past several days ... one ought not ignore a dynamic suggesting selling is becoming exhausted (as hard as this is to swallow while, day after day, the mother blanking blank blankers refuse to put up a serious bid).

On this note, too, consider the CBOE Put/Call Ratio. What's up with all the Call buying you wonder? Think hedging. Smart money, seeing how far things have come, would not likely remain smart money shorting equities at this point without more than amply hedging their positions. Look, if either the will or easy ability to send the market into an uncontrolled tailspin rivaling last October's (or worse) were, in fact, present, then there would be no need to hedge here. Quite the contrary is the case, however, and that is why Call buying has remained rather pronounced over the past month in particular. In other words, the market is not nearly as vulnerable as it might otherwise appear.

I developed this thought a bit further in comments to Friday's post...

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!