Tuesday, June 30, 2009

Got More Milk, Sucker?


Might the act of equities levitation be milked until, say, late-August? After all, it's possible the market's advance off March bottom is not yet complete. Such thinking returns to an Elliott Wave view last presented on June 15th. I'll review this in a moment.

What changed today? It was the sudden surge in bearish certainty reflected by the CBOE Put/Call Ratio...


$CPC

Mighty big spike in Put volume, relatively speaking, given how little the market fell today. Contrasting today's drop with last Monday's (6.22.09), there's really no comparison. Last Monday "figured" to coincide with considerably increased Put buying. Today did not.

Seems options speculators are anticipating some pronounced, start-of-quarter profit taking. Chances are, though, they'll not be rewarded. At least not to the extent some might believe possible.

How many times have I seen this before? Too many to count.

The only caveat I might note here is that, those many former instances were generally occurring in the midst of a bull market. The result was that, soon afterward, the market resumed its advance.

Yet I am loathe to suggest that, a pronounced measure of bearishness occurring now, in the midst of a bear market bounce, might have different meaning and lead to a different outcome. In fact, I rather doubt this.


$SPX

So, returning to an Elliott Wave view highlighting the possibility that, the market's counter-trend rally off March '09 bottom is not yet complete, here is what we see. Right now, the S&P 500 is in the process of forming its fourth wave of five waves up. And since the second wave was a "simple," a-b-c, "irregular flat," we should expect the fourth wave to be "complex" (this by the "Rule of Alternation").

This leaves several possibilities, all of which should bring the S&P 500 support in the ballpark of 875-ish. This also means the next several weeks could be as dull as watching paint dry. Look for volume to remain anemic, much as has been the trend lately. We might even keep our ears open for the sound of pins dropping on the floor of the NYSE.

Both the RSI and MACD configuration support this view that, the market's advance off March bottom might have a bit more to go. As you can see, both remain (ever so slightly) on the buy-side of their respective ranges.

Somewhere in the vicinity of 1000 might mark the S&P 500's approaching brick wall. Soon enough — quite possibly in August — the index should hit its upper limit, and then, at last, subsequently crater.


SPX 5-min

Well, if it were proper to claim "nothing is set in stone," then the above view might be called a poster child. I hesitate to even include it. I guess the point of doing so simply is to suggest that sometime over days ahead I might want to pare back my UltraShort ETF position, and wait for a better re-entry point.

Per all the weakening technical measures presented lately, there is nothing suggesting these cannot remain bearishly configured for some time longer, while every last sucker dying to be milked is drawn into the market during the formation of waves 4 and 5 of c of (b).

Per so-called "green chutes" raised by today's report of stabilizing housing prices, the problem this conclusion must contend with is the fact that, "stabilization" offers zero hope in a financial environment whose fate rests on the mantra, "Inflate or Die."

Stabilization simply is not good enough. Time's continued passage without even the faintest whiff of mortgage security inflation spells pending doom for a further widening swath of trapped credit market players (got that Mr. Immelt?).

Therefore, someday in the not-too-distant future capital needed to service an ever-larger burden of credit liabilities will need to be raised. And we all know where that will come from. That's when it will again be time to wave buh-bye to Monsieur Market...


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!

Monday, June 29, 2009

The Golden Cross in Free-Fall: Now Comes Disillusionment


Have you heard the news? Happy days are here again! According to CNBC it's time we "Bow Down To The 'Golden Cross' and Buy."

Over the past week you may have heard several folks mentioning the fact the S&P 500's 50-day moving average has crossed above the 200-day moving average. This, according to the Pumpsters at the subsidiary company of parent, Goebbels Electric, is a bullish sign. It is called, "The Golden Cross."


$SPX

Indeed, Mary Ann Bartels, technical analyst for Bank of America Merrill Lynch, in a note to clients on Friday concluded that, "the equity market remains in a base-building process that should lead to higher returns." According to Bartels, "When associated with recessions, Golden Crosses show higher returns three, six and 12 months out of 7.4 percent, 8.3 percent, and 19.2 percent respectively."

Well, blow me down! Here I am all bearish and now this. Oh, but wait. The message gets even worse (or so it seems) for the fearful likes of risk averse me. Come to find out the Golden Cross has an impressive track record...
"Bartels found that during recessionary periods, the signal preceded positive 12-month returns a remarkable 93 percent of the time since 1932."

Ninety-three percent of the time ... oh my!

Are you quaking with uncertainty about my bearish position?

Well, stop! There is absolutely no good reason. Trust me.

You see, there's a key word in both of the statements I just quoted. It is the loud and clear scream of an analyst suffering a delusional fantasy. I will have more to say about this shortly.

Being the inquisitive kind I consulted mankind's best friend, Google. Searching for more about the Golden Cross (there's woefully little), I came across the following article posted at naked capitalism (a.k.a. wind bag central):

From Golden Cross to Golden Goose?

Here we find quoted, one Martin Roberge of Dundee Securities whose Golden Cross analysis is a bit more robust than that cited above from Ms. Bartels. Roberge takes a closer look at "downside risk" following a Golden Cross on the S&P 500. Apparently, "history also reveals that important pockets of market weakness remain."

Fine. Yet nevertheless, Mr. Roberge concludes, "a [Golden Cross] is a positive development for equities," and only adds the caveat that, "many pundits [fail] to mention that such a cross does not exclude possibility of a re-test of March lows."

So, outside this possible "re-test of March lows," we have but another Happy Days are Here Again analyst buying into the [admittedly conclusive] positive historical record of the Golden Cross.

But wait! What's that we see in Mr. Roberge's analysis? It's that word again! Like the number 666 it is the sure sign these days that, the investment analyst who believes this word somehow characterizes reality is, in fact, one stark, raving, lunatic...

The word? Recession.

Oh, is that so?

Recession when, in fact, "the rate of collapse of U.S. physical goods trade with the world exceeds what took place during the [Great Depression]?"

Recession when some see "ominous parallels to the mortgage/Wall Street finance Bubbles with today’s Government Finance Bubble?"

Well, it's really no secret. We've got a serious drug problem! Recession by no means comes close to adequately describing our present state. Truth is we remain in free-fall collapse. Right now, the stock market is seen as but in the "rearranging the deck chairs phase" of its ultimate sinking whose end might very well be just around the corner.

Those Mars rovers had better find life quickly, because Treasury probably is going to be needing a backstop sooner than most people presently imagine. And let's hope Martians, if we find them, are a magnanimous bunch, because word has it the Chinese are choking on Uncle Sam's "full faith and credit."

(It's probably the "faith" part causing China its greatest angst. That's the trouble, I guess, when your nation's financial well-being depends on a bunch of silly atheists.)

This talk of "recession" so much reminds me of mainstream consensus during Y2k's "New Era" of technological progress. Then, there were but the faintest whispers of the word "bubble." Far more prolific were those who believed prosperity would continue for as far as the eye could see.

Most memorable was Greg Hymowitz, interviewed by CNBC in early-March 2000 while he and his family were on a skiing vacation in Colorado. There he was wearing rose-colored glasses (I kid you not) ... pumping the last pound of hot air into the Pump and Dump. A most priceless display of delusional commentary on the soon-to-be-dead new era in technology Hymowitz gave that happy, Friday evening.

This sort of misplaced outlook is much like we are seeing right now with talk of recession, green chutes, less bad is good and bullish market prospects portended by the Golden Cross on the S&P 500 ... this while, at the same time, both the NYSE and NASDAQ McClellan Oscillators scream, "Mayday, Mayday!"

The pervasiveness of unmistakable fantasy, easily refuted, existing among the mainstream investment community causes this risk averse analyst to believe more strongly than ever that, the S.S. Monetarist Monkey has a date with destiny, and her name is Titanic...





(Note to Elliott Wavers: Robert Prechter is but another species of Monetarist Monkey)


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!

Friday, June 26, 2009

Could Dow 3600 Be Too Optimistic?


Let me ask you something. Is General Electric (NYSE:GE) on the verge of collapsing to $0.00?


company chart (GE)

There are two reasons I ask this...

First, the company's CEO, Jeff Immelt, appeared on the Charlie Rose Show last night and informed the world that, GE's Capital unit is worth $20 billion.

Why is this of any interest? What makes Immelt's claim worth noting?

It reveals that not even corporate America's CEOs are immune to fantasy, living within the confines of a past status quo not likely to be restored ever again.

It would be one thing if GE Capital put its balance sheet to the Buffett test ... bringing some of those structured securities to market ... seeing what they get. I mean, this is a publicly traded company, and what's on the balance sheet is known to investors. If GE Capital is worth $20 billion, and this value is unaccounted for in GE's stock price, then does the investment world fail to recognize a bargain staring it in the face ... or is someone playing make believe, bursting with hope born in past circumstance that simply no longer defines contemporary arrangements?

I suspect truth lies much closer to the latter...

And Immelt certainly is not the only person in high places consumed with such fantasy! Indeed, delusion appears pandemic.





Talk of correcting an industry lacking any credible will to change its ways is not only cheap, it's insane. Indeed, amply demonstrated already among our nation's so-called "leadership" has been a thorough lack of courage to address the growing insolvency risk sweeping over both the private and public sectors, all because financial industry greed is still running wild.

Thus, the President's most frightful fantasy might be found (at 7:40) in his rejecting that, the current financial system should be scrapped. Truth is reorganization in bankruptcy is the only viable solution were avoiding further, destructive chaos, in fact, foremost desired.


company chart (GE)

Recall back a few months ago when GE was presented as a prospective canary in the coal mine whose under-performance in December '08 might have been foretelling the market's rough start in '09.

Well, GE's under-performance over the past two months adds another bit of evidence that, all is not well with financial institution "equity" ... possibly portending trouble ahead for common stocks in general.

This leads to the second reason why I wonder whether GE is on its way to Mother Goose Egg... Ready?

Now batting for team Elliott ... team Elliott ... it's the Dow Industrials' glue ... the business machine turned outsourcing whore to King Globalization ... give it up for Big Blue ... Big Blue.


company chart (IBM)

IBM, indeed, raises willingness to suggest a Dow 3600 objective might be far too optimistic a bear market target. Let this sink in.

The essential technical basis for projecting a dire outlook toward IBM is all Elliott Wave Principle ... first, in targeting the stock's prospective objective in the vicinity of $10 a share (at "the terminus of the fourth wave of one lesser degree") ... and then, by how IBM's unfolding since its peak in 1999 conforms to other Elliott Wave Principle rules and guidelines. Let's examine these a little more closely...


company chart (IBM)

First, the "Rule of Alternation" is revealed throughout the formation of waves A and B. This is just "textbook" to a "T."

Then, more recently, we see IBM retracing .618 of losses suffered following its peak in 2008. Waves 1 and 2 of wave C appear to be complete. Wave 3 of C — a third wave of a third wave — is due next. Thus, IBM's pending decline, given present anticipation for what typically is the most dynamic of all Elliott Waves (i.e. a third wave), could be nothing short of devastating.

I could not tell you what might be the detonator. All that's needed are lemmings who will rush over the edge should trouble become unmistakable. You can be fairly certain that, in risk-filled times like these a mad rush for the exits likely will develop should the bluest of blue chips begin a rapid fade and fall to its knees.

And if this should be the fate of the relatively more stable IBM, what might become of GE? Well, the image of a stuck pig, loaded to the snout with leveraged securities gone bad, might be about the only thing GE brings to life.

Now, let's return to consider fundamental conditions at present, because you should have no doubt that times we are living in are, indeed, frightfully risky...

Just look around you! No one seems willing to face reality. Instead, we find much of the world largely living within the confines of hopes and dreams residing in a past that simply has little likelihood of returning ... at least not in our lifetimes.

No one recognizes astronomical risk to equity revealed by how the role once played by private finance in building the grandest Ponzi scheme ever seen — structured finance — has been hopelessly paralyzed.

It's the "private finance" part of the equation that's key. Credit created out of thin air whose risk was mitigated by slicing and dicing, winking and smiling, no longer exists to accommodate the dream world of those who think inside the box about today's investment climate. So many folks buy into the thinking of yesteryear, when then, like now, few had any idea what really was going on: what incredible risk was being built up in the global credit system. Mother, apple pie and Chevrolet were (and still are) enough to satisfy belief in the investment game's continued viability. Reality, however, might as well have these folks living on Mars, because at least then there would be an excuse for their continued ignorance.

Now, at present, a U.S. Treasury credit bubble may be filling the void left by the death of Wall Street's structured finance — the infinite credit creating machine that former JPM CEO, John Lipsky, once called, "the lynch-pin of the U.S. economy." Yet recall what we saw last fall — what was necessary to prod government action. This did not come without considerable convulsion.

Enter the trend that's your friend now...

See Congress standing up to pawns like Bernanke, condemning the extortion that was necessary to "save the system." Consider the timing of this week's challenge, because California and another 18 states face the imminent threat of bankruptcy at the start of their new fiscal year on July 1st. Brace yourself, because a fight is brewing and things literally could turn bloody.

Clarity tonight has me very concerned.

So, I wish to ask you a favor...

Do you read other blogs, occasionally coming across articles in which the author expresses some sanguine attitude about what lies ahead in the economy and in the stock market? Maybe touting some stock as being attractive?

Would you help spread the word about the extraordinary risk to equity that might be at hand?

I have made it really easy for you to do this. Take a look at the comment area to this post appearing below. Simply copy and paste my remarks to any relevant article you come across. If you wish, you can even use my name (initials are fine) and email address.

The important thing is that, when posting your comment you include the website I have indicated. This will bring the reader here, where risk averse enlightenment awaits the more thoughtful investor like yourself.

(These same remarks also are posted in this Seeking Alpha article. Check out the rating on my comment, and you will see an objective measure of the pervasiveness of fantasy-filled hope I am alerting you to here. See for yourself a demonstration of how deluded is the world at-large toward the risky asset class called "equity.")

I hope this does not seem an odd request. If I'm right about what's ahead, you might in fact bring hope to someone presently unaware. Seriously, please think about it.

Here's the link again to the comment area below.

Go nuts, because time might be running short...


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!

Thursday, June 25, 2009

All Signs Say Fleecing Ahead


Much as was thought likely yesterday, deception was given a good old college try today. In fact, according to Fast Money traders, today's bid apparently was largely achieved "electronically." Yet not much more could be said about this. Go figure.

Now, let's be clear. Deception is a way of business on Wall Street, so this is no indictment. It is a necessary part of survival. And it is within this framework a day like today — occurring in a market whose underlying technical condition has been weakening for quite some time now — is probably best characterized, because the path of least resistance still points lower.

There simply is nothing suggesting a breakout, continuing the market's runaway advance since March bottom, might be imminent. Quite the contrary.

You might find it hard to believe today could qualify as "flailing." Yet sometime over days ahead you might be looking back and seeing the day's gain as nothing more than the market's last gasp prior to being taken underwater. This is the greater risk anyway...


NYSE McClellan

Last week's expectation calling for technical repair of the NYSE McClellan Oscillator has been met. And now, persistently fading momentum (revealed by this oscillator) finds the market in a position where days of deception appear numbered ... much as was the case on September 19, 2008.

This is not to say the market is on the verge of crashing. Rather, only that the path of least resistance points lower. Plainly, too, the market's low set in March appears likely to hold.


NASDAQ McClellan

And conditions on the Pump and Dump likewise concur. So, why should I beat any further the dead horse that is the U.S. stock market when on this night it might be more fitting giving Michael Jackson one last hoorah...





Good advice, too, in the one battle where it does matter who's wrong or right.


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!

Wednesday, June 24, 2009

Just Whose Big Mouth is Challenging Perceptions?


It is not every day a U.S. Congressman publicly charges the Chairman of the Federal Reserve with engaging in criminal activity. Big news, fundamentally speaking, because the gambling junkies on CNBC know perception is everything — particularly when the underlying state of things looks more bankrupt with each passing day. Thus, the mad rush to defend "Don" Bernanke.

You know my position. I believe monetarism is as dead as Elvis. There is no saving what has been built up ... polluting the balance sheets of financial institutions worldwide. It is done. Thus, my Mr. Market Twitter on this subject principally is satire for entertainment purposes.

Indeed, the Monetarist Monkey support network might better shut up, because saner minds perceive protests re: Bernanke as a whiny, panicked confession that Wall Street is not yet done fleecing the public. More time is needed to transfer trash from strong hands to weak ... with "trash" most emphatically including equity ... because higher up on the accounting food chain is a mountain of debt whose serviceability is fading with each new month's reporting of conditions in the moribund real estate market.

Yes, perception is everything ... and Mr. Bernanke's appearance before Congress on Thursday is bound to make the job of spinning reality mighty tough. I had no idea Congressman Darrell Issa (R-CA) was going to make waves today. Truly, yesterday's link to "Touch My Monkey, Pet It, Love It" was potluck. Fortuitous, though, considering the anti-government barrage coming from the Tory Press in answer to the S.O.S. distress call from the good ship Monetarist Monkey.

(I'd give you a link to check out, but there isn't one worth citing... "Journalists" are probably too busy digging up the dirt on Issa ... with Shemp — practically in tears — offering the warm-up.)

Time will tell if four days until end-of-quarter is time enough to repair what are now troublesome appearances. Judging by overnight futures trading, the masters of deception are game for a good old college try. Not a surprise. You could see it coming by how the bid on the Pump and Dump was far slower to deteriorate this afternoon, relative to the Big Board...


NASDAQ 5-min
NYSE 5-min

Most telling, however, was the full extent of participation in today's rally on both exchanges...


$NAAD

Fewer than 500 more issues advanced than declined on the Pump and Dump today. This is conspicuously thin, particularly given COMP's better than 1.5% gain.


$NYAD

Contrarily, there were far more Big Board issues finishing positive on the day. Yet NYA was up only 0.63%.

How might today's trading best be viewed, then? Well, first and foremost, as demonstrating the character of a seller's strike ... with a close second being evidence suggesting an uncritical willingness to believe prices will move higher.

And this, of course, is precisely what you should expect just prior to a fleecing.

There is much more than the credibility of the Federal Reserve at stake going into June 30th. A lower close on the month (after trading higher earlier) could signal loud and clear that a new round of selling — parting fools and their money — has only just begun...


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!

Tuesday, June 23, 2009

Monetarist Monkey Math


One...


$BPNYA

Plus one...


$NYA

Equals...


A touch of post-Fed meeting, Monetarist Monkey rage coming? Sure looks that way... 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!

Monday, June 22, 2009

Ace Ventura, Pit Detective


Okay, so we have the money management community, climbing back from the depths, holding a bucket of yummy gains, seeking alpha, looking to keep balance and come out Q2 a winner...





Then, suddenly, a stumble ... and the risk is of becoming so much shark bait.

Might today have sounded a lemming red alert? With only six days remaining until end-of-quarter, there's cause for concern...


$CPC

This appears a train wreck waiting to happen. Indeed, with the July front month beginning with approximately 40% more CBOE Equity Options Call contracts than Put contracts open, we see how prospects for a charge into the abyss finds wide the gate and broad the way that leads to destruction.

And any "pause that refreshes" might amount to little more than a flailing push around the shark pool...


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!

Saturday, June 20, 2009

Raising Lazarus, the Leveraged ETF Investor



This past week reader J.R. (neither of "Dallas" fame nor to my knowledge the former NFL coach) sent me an article you might be interested in reading. The subject involves an issue you may not be familiar with.

J.R. was alarmed by what he learned, saying...


"Tom....this one is right up your ally. It will seem crazy at first but I need your undivided attention on this very detailed explanation. Perhaps, Cramer may have a point as to why SKF doesn't quite do what it's supposed to. Worse, it does do what it's supposed to, just not what we thought it is supposed to do. Crazy stuff here, but a seemingly educated and well done case against ETFs, especially Ultra ETFs.?"


Here's the article. I recommend you read it...



Now, I was aware of the risks the author raises. Yet since you might not be, and because the author does a nice job of explaining the matter simply, I wanted to pass this along.

Let me also share my reply...
I am familiar with the risk presented in the article you forwarded. And I accept this risk. I appreciate the fact that, "you are almost mathematically guaranteed to get a return that is not double that of the index" with ProShares 2x fund positions held for any period of time. Nevertheless, with a reasonable degree of correct timing over some relatively short-term duration you still can do better than the underlying index. Even when I was wrongly positioned earlier this year (Jan - Mar), the market's subsequent recovery brought my position back to the point where the loss I suffered was acceptable. Had I held the position a little longer I would have suffered no loss at all.

Cramer definitely has a point regarding SKF. It is the same point the author makes. However, does this mean they should be banned? I rather think Cramer is talking Wall Street's book (particularly Goldman's). He believes these leveraged ETFs punish what are otherwise good stocks. Contrarily, I believe most of the stocks in XLF (GS included) are grotesquely leveraged pigs waiting to be slaughtered. To blame the SKF for the recent travails of these companies is just plain ludicrous.

Can't say any valuable lesson was learned from my experience being on the wrong side of the [leveraged ETF] trade earlier this year ... other than that some significant portion of long equity players who were still positive at year-end '08 probably should have been expected to lock in their [reduced] profits at the start of the year. I should have foreseen this and not have been so quick to think the recovery we saw post-March bottom might come sooner. Unfortunately, the thought of "profit taking" at the start of the year never crossed my mind. Nevertheless, that recovery did come as anticipated proved the savior of my position. Since this is what I believed would happen, I did not panic out of my position late-February, early-March, despite the fact it was getting clobbered.

I think the underlying stance many leveraged ETF commentators have toward "market timing" submits to belief that such endeavoring is an exercise in futility. Of course, at some level I would agree with this. However, as an overriding theme of one's investment philosophy I reject the notion that mass psychology is entirely chaotic and indiscernable. Investing is one place where humanity's tendency to behave like lemmings is reasonably quantifiable.

Not sure if any of this helps answer the question you might have about whether I actually know what I am doing, or whether I am running on luck. To be perfectly honest it's a little of both. I suspect that, even Warren Buffett would confess the same at some level. That said, though, I do not suppose I could have matched his performance over the past 40 years were I his age. Then again, past performance is not indicative of future results and it is quite possible Mr. Buffett's unswerving faith in American capitalism might be put to the test straight ahead.

Quite the windbag, aren't I?

Anyway, my observation about "profit taking" at the start of the year was something I have been wanting to write about. Profit taking is not something you would expect following last year's unraveling. However, fear being a very powerful emotion and U.S. tax law working off the calendar year, selling at the start of the year originating from players fearing full loss of long-term capital gains makes a lot of sense.

And once this got under way, then came the lemmings...

* * * * *

© 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!

Friday, June 19, 2009

A Tremendous Amount of De-leveraging Lemming Stampede


So what will take this market down? What could possibly go wrong? Well, I will tell you what. It's the same thing that carried the market higher from 1982-2000 ... and then drove it down from 2000-2002. It's also the same thing that visited the stock market last year and is having its way right now...

There it is. Yes, you might even call the leading edge "smart money." The underlying force simply characterizes human nature.

The lemming effect is the reason why no man these days wears a stovepipe hat, and why changes in fashion stick.

It is why most people start smoking, and it played no small part in helping Barack Obama win the White House (this despite financier-friendly policies over 100-1 opposed when the TARP came up for vote in Congress last fall).

Indeed, the lemming effect probably will have profound impact from here on out should any severe bout of selling suddenly sweep over the market. Fear is a powerful emotion. Following last year's throttling, sensitivity toward suffering any more financial pain no doubt is elevated. As I have already suggested, if the March '09 low is taken out, there could be an avalanche of selling thereafter.

With "a tremendous amount of de-leveraging still to do" (this according to Jack Bogle of the Vanguard Group) it is only a matter of time before overexposed institutions, starved for capital, bring on the cry, "Sell, sell, sell!" ... And follow the lemmings will.

Mark these words, because the lemming effect, principally, is what drives the stock market's direction. Always has, always will, and this has been understood for thousands of years.

Now, with this in mind we should also appreciate that, a great deal of effort probably will be made in an attempt to prevent the March '09 bottom from being violated. So, in anticipating a 5-wave decline toward levels last seen in 1994 (Dow 3600) we might better expect that, the first and second waves likely will keep major stock indexes trading above March '09 lows.

Let's give this probability some fundamental, historical perspective...

Back in 1929 following the Crash, an effort was made by Wall Street insiders to stem the damage brought on by leverage gone bad. Vested interests with nothing (and everything) to lose pooled their resources, and with much fanfare began buying up beaten down issues. That is why, when the likes of Cramer talk up the attractiveness of owning financial companies whose secondary issues are being floated in an effort to raise capital, you would be wise to recall this bit of history. Same crap, different day. And we likely have not seen the last of it (which is why March '09 bottom might not soon give way).


$VIX

Maybe FDR was wrong when he said, "let me assert my firm belief that the only thing we have to fear is fear itself -- nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance." He might better have added something about irrational exuberance, too (and beaten that Monetarist Monkey hack, Greenspan, to the punch).

Now, I don't claim to be an expert in the driving forces behind options trading affecting the Volatility Index. However, something does not stir the Kool Aid seeing implied volatility decline such as it has over the past couple days, at a time when the relative strength and momentum of the market's advance clearly is fading...


$SPX

You have to love the S&P 500's volume trend over the past week, too. Fear is building ... and appears to have a lot of room to grow.

Likewise, judging by observations shared by Fast Money trader Jared Levy, the probability of an imminent period of pronounced selling is elevated. Although this is not any surprise here, Levy sure does present some welcome technical news.

(You can listen to Levy's remarks simply by clicking the Word on the Street icon below. His insight can be heard at around the 4:00 mark.)




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!

Thursday, June 18, 2009

Systemic Risk Is Anything BUT Off The Table


One more day remains for June options contract writers to protect their fee-based revenue stream liabilities, then it might be about time for a good old fashioned throttling.

Now, whether this possibility is more or less likely is difficult to say. Not many observers are expecting anything other than "correction" of gains made since March bottom. Yet growing underlying technical weakness might be setting the stage for selling that's a good bit steeper than most everyone, it seems, presently fears.


NYSE 5-min

Any further bounce off Wednesday's bottom should be fairly limited. Still, another couple percent of upside is possible, so be careful not to let the deep sea of monetarist monkeys sell you their rotten bananas, claiming "systemic risk is off the table." It's just one earthquake away. Ask anyone from California.

Likewise, prospects for financial tribute courtesy of health care "reform" are taking a turn for the worse. Don't let financial media gloating over this on account of the "unacceptable cost" cloud your thinking. CNBC did not broadcast President Obama's hour-long speech before the American Medical Association on Monday without commercial interruption because Wall Street hopes the "reform" effort will fail. Quite the contrary. That the Senate Finance Committee can't even get a bill marked up is a setback to capital-starved financial interests. And soon enough, the hunger of those firms still leveraged to the teeth is likely to turn voracious. So, guess what will be served for dinner? That's right, leftovers from the same French dish as last year: Monsieur Market.


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!

Wednesday, June 17, 2009

The Making of Terminator, the Reality Show


Remember this one...





Well, fun and games in the "Which Side is Up?" world we live in is moving to the world's sixth largest economy: California.

Here's what the spokesman for the state's Treasurer had to say about Standard & Poor's warning Tuesday that, California's credit rating, already the lowest of the 50 states, may be cut again...
"S&P raises undue alarm about the potential for missed bond payments," he said. "There is zero chance of that happening."

Well, you know what they say... Never say never. This seems rather relevant, too, considering Controller John Chiang has warned that the state could run short of cash beginning July 28, just one month into fiscal 2010.

Now, you may have heard politics is a dirty business. No wonder, then, White House Press Secretary Robert Gibbs had this to say in response to the California fiscal situation...
"We'll continue to monitor the challenges that they have, but this budgetary problem unfortunately is one that they're going to have to solve."

"Unfortunately," too, last year's game of financial chicken evidently has a great deal of life remaining...

I am bringing this to your attention because I suspect the calamity phase of the still unfolding bear market might have begun. It's possible there will be no final leg of buoyancy such as I have been anticipating.

Right now, I am wrestling with the fact that some underlying technical measures have moved to a position where one might expect weakness to soon abate, possibly signaling imminent recovery coinciding with the market regaining its legs.

To whit, both the NYSE and NASDAQ McClellan Oscillators are reaching levels that, relatively speaking are "oversold." In addition yesterday and today saw more Put option volume than Call option volume on the CBOE...


$CPC

Now, one thing of note here is the behavior of the CBOE Put/Call Ratio at market tops. You see this sort of divergence both in bull and bear markets. It suggests waning speculative fervor behind a market advance. The most recent instance of this has been in evidence for over the past month and a half.

Then, yesterday and today a bit of the fear (shown by increased Put buying) — noted absent on Monday when major indexes were throttled 2-3% — suddenly has developed...

Is this signaling the nearing end to a pause that refreshes, setting up continuation of the market's advance off March '09 bottom? Or is it, contrarily, a first-sign of pending trouble — smart money taking a bearish position?

I suspect it's the latter, and that within a matter of days we could know for sure...


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!

Tuesday, June 16, 2009

All Eyes on the Pump and Dump


Do you remember the chart showing the NASDAQ Composite breaking its long-term uptrend during last year's throttling?


NASDAQ weekly

The thinking was that the index might react back up to that trend line. In so doing technical imbalance following last year's collapse would be "repaired" and set up the market's next leg down.

Well, if last year's performance offers any clue, then the NASDAQ Composite has risen about as far as it will and presently is poised to embark upon the heartbreak phase taking the index sharply lower...


$COMPQ

NASDAQ's gap lower early-January 2008 became a barrier where selling again developed once the index had reacted back up to it at the conclusion of the March-May 2008 counter-trend rally.

And now ... just look where the index stands in relation to last October's gap lower. Say hello to my little friend ... another brick wall.

Yet at present the index finds support at another gap — the one occurring on June 1st, 2009 when the CME served a reprieve, temporarily alleviating the threat of underlying weakness that had been building. Now the question is whether this support will hold.


NASDAQ 5-min

Today's trade was a gift. The fact that a new low was set in NASDAQ's decline since last Thursday (6.11.09) indicates five waves down ending yesterday likely are not the last of selling set to hit the Pump and Dump during the present phase of its fade from last October's gap.

However... this is not to say wave (2) labeled above is, in fact, complete. Indeed, I suspect it isn't. Rather, my suspicion is that NASDAQ will be forming wave (2) [of five waves down] over days ahead. In the process the index will, of course, fail to exceed its peak last Thursday.

The same might not be the case with the NYSE Composite (as well as the S&P 100). My contention remains that large cap indexes, like NYA and OEX, have yet to complete their advance off March '09 bottom.

Contrarily, however, it appears COMP has.

Just how close we are to a very serious bout of selling is becoming clear. One final leg of buoyancy appears in store, then Katy bar the door. Over the next couple weeks chances are confirmation of this outlook will build, as will confidence, too, that a ton of money is ready to be made. Confidence is the very life-blood of an investment strategy understanding how patience pays...


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!

Monday, June 15, 2009

Spotter of Brick Wall Sees Test of Floor Pending


I thought it rather interesting that, on such a negative day as today there were more Call options traded on the CBOE than Puts...


$CPC

Is there no fear of further selling in the stock market? Interesting. Might the floor at the OEX 415 strike be tested in a heartbeat?


$OEX

As you see, both RSI and MACD weakened during the formation of waves iv and v of wave 3 (that is relative to waves ii and iii of 3, respectively). This is precisely as one would expect during the formation of a 5-wave Elliott impulse wave.

Therefore, too, expect both RSI and MACD to weaken during the present formation of wave 4, as well as during wave 5 to follow (that is relative to waves 2 and 3 respectively).

With this expectation in mind, then, as you can see, anticipated technical damage could come as soon as tomorrow. Thus, an extension of today's selling, taking the OEX to the vicinity of its 50-day moving average, appears an entirely reasonable probability.


OEX 5-min

Interesting how 5-minute RSI held up relatively better during this morning's collapse versus Friday morning's. Likewise interesting is how little the OEX recovered this afternoon, while at the same time RSI moved into balance. Another round of hard selling, stat, cannot be ruled out.

A brief remark concerning the trend on the CBOE...

One wonders how much of relatively pronounced Call buying over the past few months is coming from players who wish to be long equities, but only once they see this desire is shared by others. In other words, some significant portion of Call volume could be establishing positions buyers intend to execute ... on condition the market moves in their favor.

Smart, yes ... but not really all that bullish. Not exactly the mark of conviction coming from those more savvy players employing this measured strategy with an eye toward going long stocks...


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!