Accentuate This, Shemp! ~ The Risk Averse Alert

Tuesday, September 08, 2009

Accentuate This, Shemp!

What percentage of the U.S. economy is driven by consumer spending? Seventy percent?

So, with news that consumer credit continues to contract at record rates, how long might it be before U.S. corporations find issuing debt securities difficult once again?

Talking heads can play the [lowered] earnings expectations game, as well as blindly assume that "less bad" means things will soon turn for the better, but news like this is bound to lead to some money managers connecting the dots. Granted, the likes may be too timid to aggressively sell their equity stakes just yet. But aggressively buy when future earnings necessary for servicing debt might not be forthcoming? This hardly seems wise.

Indeed, this collapsing consumer credit news helps make a lot of sense of the stock market's performance since March '09 bottom (believe it or not!). You might even say this news is "baked in."


First (and foremost) is the fact that, the greater portion of the market's advance has been the result of two massive short squeezes (first in March and again in July). RSI's uncharacteristically steep ascent is proof that something other than the typical battle between buyers and sellers was behind the greater bulk of the market's advance.

Second is the fact that, the volume of shares exchanged persistently has diminished over the interim. Money managers plainly are not snapping up shares at an increasing rate ... and, as we see, they have good reason not to.

Both technical facts suggest nothing fundamentally positive is behind the market's advance ... thereby confirming the awful news regarding consumer credit.

Listen, there isn't a day that goes by without some manipulation or another driving stock trading. This simply is the nature of the game. (Isn't that right, Mr. Livermore?) So, any concern for "market manipulation" ought rightly understand the context in which it occurs. The worse than expected collapse in consumer credit helps provide such context. This news represents a fundamental fact harmonious with the technical case projecting the stock market's eventual collapse.

So, Chief Running Mouth, let's see you accentuate the positive in that!

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!