On Dow 30 Leadership Higher ~ The Risk Averse Alert

Monday, October 12, 2009

On Dow 30 Leadership Higher

Summarizing my intermediate-term stock market outlook...

Absent a declaration of war against all things wildcat finance, wildcat finance and its victims will remain at war within the confines of the status quo evolving over the past many decades, now fending for choice pieces of a rapidly shrinking physical economy. Either way, equity stands at great risk. Thus, equity is believed dead money looking out the next several years.

XLF weekly

Technically, financials are at a crossroad ... still waiting on NASA's discovery of benevolent, alien life on Mars willing to back the U.S. Treasury.

Analyze This: Bank on It?

Today's new intra-day high in the Dow Jones Industrials Average is significant. It suggests top to the post-March '09 bottom, counter-trend rally might not yet be in.

Yet that the Dow alone presently is leading the way higher — this while all technical things NYSE lead all technical things NASDAQ — is a red flag. Were a positively poised backdrop in place supporting the likelihood of substantial gains ahead leadership in the charge higher would be quite the reverse of what we are seeing. Thus, any further advance off March '09 bottom likely will be relatively limited.

It is becoming clear, too, that holders of dead equity are hedging their exposure with Put options below the market and hoping to reduce their exposure writing [covered] Call options above the market to a crowd subject to the media psy-op surrounding earnings season, and this likely is being done in the expectation some Call buyers will exercise their option and effectively provide a conduit for offloading shares. Keep the CME juice flowing no matter how bad the news, and strong hands are able to game the system and buy time necessary to complete the transfer of grossly unattractive equity.

No matter the fact that higher highs appear in store, there is every reason to believe 2009 could finish negative versus 2008, even were top not reached until December 4th. Over the interim all manner of technical deterioration already registered should only worsen, thus paving the way for a great deal of pain whose impact should devastate a majority of players...

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.

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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