Crap Pit Boss Lights Fire for a Pig Roast ~ The Risk Averse Alert

Friday, April 24, 2009

Crap Pit Boss Lights Fire for a Pig Roast

How much (or, more aptly, how little) further the market might rise from here suddenly this afternoon became of little consequence when appearing on CNBC's Street Signs (hosted by a fair imitation of Bob Dole; hint: the pen-is in her hand ... LIMP! Sorry), the mighty Shemp served notice to all who rightly have their sights on the bottomless pit called the global financial system that, competent macro analysis will always take second seat on CNBC when there are sheep to be sheared...

Who does he think he's kidding? The "stress test" is meant to be all talk and no action? Banks will just go on with business as usual and, not only is this a good thing, it is brilliant policy?

Wait a minute!

Is this the same ranting orangutan whose "people in the business" were drowning in securities that could no longer be traded?

Oh, so now that the hyperinflationary pedal is to the metal all is well? Puhlease!

The only blind eye to be turned is on stability, which, itself, awaits bankruptcy reorganization of the entire global financial system (which, mind you, is not presently on the table).

So, when I heard the pit boss of the low-stakes crap table at El Swindle Grande state his belief that, a wink and a smile from Tiny Tim at Treasury would do the trick and buy much needed time, I feared all the more the fate of the bull turned pig, and saw more clearly just why this pig is slated to be slaughtered.

Besides, an overbought rally whose momentum is turning over is a recipe for disaster in a bear market. This much I alluded to yesterday. So, rather than stick around any longer I closed out my Ultra ETF position (more on this below).


I will take seriously the present, absolute readings of RSI and MACD on the derivative technical measure called the NYSE Bullish Percent Index. If nothing else, the end of the market's advance from March '09 bottom appears at hand.

Truth is, too, I am growing tired of thinking better might come to the stock market (because so much bad already has passed). This sentiment, principally, has dominated my outlook (one way or another) since the beginning of Risk Averse Alert time. And now recently highlighted, fear-born caution only becomes firmer conviction with Cramer taking to the international airwaves today proclaiming an outlook so shockingly fantastic, you'd practically have to have been in a coma these past two years to believe what he was saying.

How much more evidence do we need the market is in no mood for a "pass?" Indeed, today's circumstance seems well-beyond any issue of mood. The stock market has crumbled out of very need. A highly-leveraged Ponzi scheme (structured finance) is, in fact, collapsing.


Well, the first five of ten days starting Monday, April 20th have passed much as anticipated ... starting with a little pressure (or for more dramatic effect "Just Another Day at El Swindle Grande Casino") ... followed by a bid the remainder of the week whose effect had less positive impact on indexes than was the case during the ten days that ended on options expiration day, Friday, April 17th.

Judging by the markup drawn above you see why the market might be strained to rise much further over the next five days. So, might this provide good reason to move to the Ultra Short ETF side of the trade?

NYSE weekly

Since the market's present state might be likened to that which existed late 2001, maybe it is too early to take on an Ultra Short ETF position. Maybe it is better to allow some further confirmation that a top, indeed, is at hand.

Granted, technical conditions suggest the market is likely to experience some measure of selling pressure over the next several weeks. Yet given the power of baboons to whip up animal spirits, why destroy the potential to offload bloated inventories of shares, particularly considering the realistic possibility present levels might be about the best major indexes see for another five years or more? Why not use this moment when the lender of last resort is "all in" to feed belief better days are ahead? After all, government rescue of the financial system could not possibly fail, right?

The late-2001, early-2002 period becomes all the more curious, then.

Yet time and again we see how technical conditions appearing similar to some past moment generally do not result in the exact same outcome. So, given Tuesday's view (presented via the NASDAQ Composite Index) suggesting a retest of March '09 bottom might be in store over coming weeks/months, it seems wise to cut losses on my Ultra ETF position rather than hope for a trade similar to the late-2001, early-2002 period.

Although my loss is less than 10%, a loss still is a loss. The only way to sugarcoat this is reasserting that, when the position was initiated (1.9.09) there was good reason to believe the market would not fall apart in a fashion rivaling the September - October '08 period. Granted, going into March '09 bottom the validity of this view proved debatable. Subsequently, however, it has been confirmed (albeit not precisely in the manner I originally anticipated).

Unfortunately, I put too much faith in an assumption that, November '08 lows would not be taken out. Still, at March '09 bottom, there was plenty of evidence suggesting a strong recovery was likely to unfold, possibly resulting in my Ultra ETF position turning positive. Indeed, had the past few weeks unfolded with upside power comparable to the initial launch off March '09 bottom, then my position might have fully recovered. Instead, the market's recovery this month turned choppy and its technical condition has begun to falter. So, I am out.

As soon as some sustained trend appears imminent (up or down; likely the latter), I will initiate a new ETF position. In the meantime I believe cash is king.

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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