The stock market presently appears it could do any number of things ... save one. And that is explode higher in some fashion bringing me to regret my current cash position.
Judging by the subtle contrast in the recent performance of the market's generals versus the broad army of listed companies, the charge forward is stalling.
Last Monday's cashing of chips at El Swindle Grande may in fact mark the peak in the S&P 100 Index. Yet despite that day's wounding of large-cap heavyweights whose financial components attract vast sums of money like a casino craps pit, there apparently has been enough excitement built up in the house to keep promise alive at the more numerous blackjack tables...
Funny how decided selling came to the Big Board during the final ten minutes of trading on Friday (4.24.09) just as the NYSE Composite approached the very area where it began last week. Interesting, too, is how selling continued during the opening minutes of this week's trading ... both yesterday and today.
Is this possibly a test of strength of animal spirits? Just how hungry for shares are those who picked Monsieur Market off the mat following last Monday's throttling ... subsequently carrying the NYSE Composite to full recovery by week's end?
Judging by volume, yesterday and today, the answer is not very hungry at all. That can't be good.
Oh, and I forgot to mention something yesterday. Following the thud lower starting this week's trading and then the subsequent morning recovery bringing the NYSE Composite nearly even on the day, there still were two stocks declining on the Big Board for every stock advancing. In other words, recovery was affected by a narrow group of stocks. Another strike against animal spirits whose interest must exist for this market to be driven decidedly higher.
Ah, but over at the slot machines affectionately known as the Pump and Dump, hope waxes eternal. (Go figure.)
So, then, we see how broad retreat appears an option being resisted. Thus, any move back to respective index 50-day moving averages might be some days off ... say, sometime near May options expiration (5.15.09).
Everything technical ... although weakening ... continues holding up quite well. If nothing else, this would seem to support the likelihood March '09 lows will not soon be tested. Likewise, it might also suggest the worst of any expected weakness over the next few months could pass sooner, rather than later. Subsequently, then, technical strength might build in support of a final charge higher sometime a few months from now.
This view of NASDAQ has been presented a couple times before. Ever so slowly approaching overhead resistance in the vicinity its 200-day moving average, COMP looks to fall back to its 50-day moving average before turning higher again, and possibly launching upward to 2200 later this year. Again, this probably is the most optimistic prospect we might have to look forward to before the lug nuts completely fall off the global financial system, leaving a bunch of Monetarist Monkeys and other assorted misfits in disgrace.
Here and now, depending how further evidence of impending weakness develops, I am giving some thought to a trade. No rush. It certainly does not appear the market is in any hurry to pull back, so there's no harm in verifying its present levitation is losing steam. This could take a few days.
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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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