I have a sneaking suspicion Friday's post (Stock Market Top Appears Nigh) will be one I refer to many times again over months ahead. Particularly the part where I asked...
Might the path of least resistance indeed be lower, yet in such a way as often frustrates and in the end defies the expectations of most?How can I not think back to last September? Following the screaming two-day rally of September 18-19, 2008 I was not of the belief the market was on the verge of crashing. Indeed, I was seeing RSI and MACD divergences as indicating that, a bottom was forming ... aware of the fact these divergences were occurring on the decided sell-side of their respective balances ... and so waiting for a pullback whose technical confirmation would justify a long ETF trade.
Well, we got the pullback ... and then some. The minute the low of September 17, 2008 was taken out I knew something was wrong. So, there was no long ETF trade. Yet I was oblivious to the likelihood of what followed.
I was in cash, so I was not crushed. Yet what an opportunity I missed.
I am mentioning this because what might pass in the establishment of the stock market's march lower (down its path of least resistance) likely will see similar unanticipated moments.
In fact, it's entirely easy and reasonable to imagine a Herculean effort likely will be made to hold March '09 bottom. After all, the lender of last resort is all in. And because this is what it took to put a floor under equities, what would this floor's giving out say about Treasury? There, indeed, is fundamental reason, psychologically speaking, to suspect March '09 bottom is a Maginot line whose breaching literally threatens the fall of the American Republic with a crushing blow to its financial backbone.
So, in an effort to reduce frustration I have added a couple things to Friday's $NYA chart making it suitable for printing and hanging as a reminder...
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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.
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.
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