Monday, November 30, 2009

Pop Quiz: Name the Sentiment Preceding Panic


I guarantee a light bulb will ignite in your mind the minute you read what I am about to ask you...

Back in May I wrote about the three phases of a bear market. These three phases are denial, panic and capitulation. Much like Elliott Wave Principle formulations, each of these three phases will possess some measure of the same three phases in kind.

So, tell me, which of these three did you see in great abundance today, and this no less in the midst of growing risk of sovereign debt default that, late last week suddenly moved onto the global stage, front and center? How many times today did you witness those various lap dogs among the more pliant and accommodating, less penetrating financial press perform their now well-rehearsed Alan Schwartz, "all is well" routine?

Ding dong ... HELLO! The state of denial among those who refuse to acknowledge the global financial system's complete bankruptcy is as vivid as a rainbow set upon a backdrop of dark storm clouds. I mean you literally have to be blind not to see!

Listen, as long as this growing risk of sovereign debt default is not recognized for what it really is — a reflection of the ultimate impotence of every lender of last resort to effectively deal with a gigantic mess that to this very day continues spiraling out of control — chances are the current state of denial will persist ... until some major link in the still terribly weakened global financial chain invariably gives out, turning today's denial into some tomorrow's colossal panic. Mark these words.

Now, before I present a laser-focused dose of objective evidence suggesting the stock market is on the verge of cratering, let's consider the implications of Ben Bernanke's magnificent bluff appearing in yesterday's Washington Post...

Question: why so publicly respond to growing Congressional mistrust toward the Fed's role in bailing out hopelessly bankrupt financial institutions — the very condition the Fed (Greenspan), indeed, should have prevented from ever existing in the first place? Why provoke even more indignation than already is likely to surface during Bernanke's upcoming Senate confirmation hearings later this week? You don't suppose Mr. Bernanke is unaware of foul treatment Treasury Secretary Geithner recently received, or of growing calls for the Treasury Secretary's resignation? Why, then, feed into exploding Congressional resentment rather than quietly seek to contain it?

Answer: what's the harm lashing out when you've got nothing to lose (because, in fact, all is lost)?

And so, an awful manifestation of present fundamental reality, tearing at fragile confidence, meets a foreboding technical state existing within the key sector at the very core of our still unfolding, contemporary global disaster: Financials...


XLF

You simply could not ask for a more ominous technical picture than the Financials Select Sector SPDR currently presents.

First observation is these past two days appear a microcosm of trading during the week of September 15-19, 2008, following Lehman Brothers' bankruptcy. The fact that, both relative strength (RSI) and momentum (MACD) are languishing on the sell-side of their respective ranges all the more raises probability the Dubai World default shares some significant similarity to last year's Lehman Brothers shock.

Further, a head-and-shoulders top — a distribution pattern — appears to be forming ... with volume accompanying formation of the right shoulder coming in lighter than that accompanying formation of the head. This is textbook Edwards and Magee. So, should elevated volume accompany downside penetration of the neckline, XLF's head-and-shoulders top will be confirmed. Subsequent decline following a prospective, upcoming neckline penetration projects a minimal objective in the vicinity of XLF's 200-day moving average.

Finally, an island reversal occurring at the very top of the head is like a desert cherry. Or is it a cherry bomb?


XLF 5-min

RSI confirming on the sell-side and diverging on the buy-side ... while over the past two days wildly swinging from one extreme to the other ... heightens probability Dubai World lit a fuse that is about to explode and tear apart the Financials Select Sector SPDR.

The message is plain and simple. But deny it fools will...


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.


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Friday, November 27, 2009

Natures Way


This is a good time to contemplate near-term possibilities in the divide separating a market whose material support demonstrably is contrived (though likely consisting of well-healed interests) ... from fundamental reality whose power to deliver frightful surprises is being stoked by Monetarist Monkeys who confuse great walls of liquidity with real, wealth-producing, physical economy.

Although there continues to be an abundance of technical and fundamental reasons for believing equity is dead money — much as has been the case for the vast majority of exchange-listed issues over the past decade — there also is every reason to believe those private and public interests whose world today is crumbling all around them are capable of maintaining contrary appearances for a time longer than weak hands in the bear camp might otherwise wish.


$COMPQ

Trend-leading NASDAQ presents a weakening RSI and MACD configuration not yet matched by other major indexes. Any thought supposing stocks in general are bullishly positioned should be tempered by this fact because, lacking is any demonstration of such animal spirits as otherwise would shed disproportionately more love on the more obscure issues listed on NASDAQ. Indeed, less love is being demonstrated via the NASDAQ Composite's notably weaker relative strength and momentum performance since early-July. Contrasted with the performance of the same technical measures applied to the NYSE Composite index over the same duration (see below), the message plainly is bearish.

Much the same is revealed by the severely lagging measure of NASDAQ-listed issues participating in the advance off March '09 bottom. Thus, the trend-leading NASDAQ is seen unmistakably pointing the way lower.

The question right now is, how much lower? Like I said Monday, despite being extraordinarily bearish I am loathe to call a top because, like I said Tuesday prior, it's possible the 3-month and running circle jerk thus far endured since July's monster short squeeze could continue a while longer.


$NYA

Back in September I put forward an Elliott wave count possibility along lines you see above. No reason why this view is any less likely than the other more frequently presented wave count you have seen for wave C of (B) off March '09 bottom. No reason whatsoever.

(Elliott wave analysts — myself included — sometime have a tendency to "rush" the wave count. This is an instance — even were a rush to judgment suspected — where haste is forgivable for two reasons. First, there is rock solid technical confirmation of the more frequently presented wave count — delivered via RSI and MACD — and second, January '09 began with continuation of a c wave from late-December '08 whose dimension and duration mistakenly was thought likely to be greater than turned out being the case, so this precedent, indeed, gave reason to exercise heightened caution in projecting the Elliott wave count for wave C off March bottom.)

The above Elliott wave count shows wave 4 [of five waves up from March bottom] presently forming. Unlike the case with $COMPQ, though, $NYA's RSI and MACD have yet to take out respective lows set in July. Being that early-July marked the end of the "fourth wave of one lesser degree" (i.e. wave iv of 3), one might better expect both RSI and MACD to register lower readings ahead, sometime during the formation of wave 4 of C of (B).


$INDU

One reason to suspect well-healed interests — those whose buying going into March bottom and immediately thereafter — might gain added time to milk those [mutual fund/pension fund] goats buying at these levels is presented by the "Peace and Safety" mindset willingly bidding widely-held Dow stocks more aggressively of late.

Why wouldn't today's 1929-like "Plunge Protection Team" take advantage of this opportunity to offload as much dead equity as possible, now that circumstance far outside the control of the Fed and the U.S. Treasury has shown its ugly face? Team Fraud already has been at this effort for four solid months now! So what's a few months more, then, pretending an endless stream of the worst news possible soon will abate?

Sometime last year I noted my tendency to require the passage of time before trading awakens a well-formed analysis. You might say this is the case in my supposing a "Plunge Protection Team" saved the market from total collapse earlier this year. This but recently offered conclusion gained credibility only with the passage of time in which the volume of shares exchanged sharply contracted. Were anything other than a "God save the queen!" element supporting equities (and at this point in history, quite literally so!), the relative collapse in buying interest revealed by volume's noteworthy contraction over the past several months would not have resulted.

Ditto, too, my recently offered conclusion claiming the bear camp remains in complete control. In truth — and this is just nature's way — today's Plunge Protection Team is no more bullish than were their forefathers in March 1930, just prior to the very worst of the stock market's Great Depression throttling...


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. There's an easy way to boost your investment discipline... Get Real-Time Trade Notification!

Thursday, November 26, 2009

As Dubai World Turns


Try not to get worried, try not to turn onto problems that upset you, oh, don't you know everything's alright, yes, everything's fine and I think I shall sleep well tonight let Dubai World turn without me tonight close your eyes, close your eyes and forget not about US (UltraShort) tonight...
Alright! So, this is how it will be, then. One day wondering when another Jamie Dimon, "unforeseen" problem might arise, and the next day...
Oh boy. Well, let's see just how long Team Fraud can go without stabbing each other in the back while the fraternity of less penetrating players works its winking and smiling routine wrapped in good holiday cheer, trying to sustain today's insolvency masquerade ball through the end of the year. Timing might not be everything, but with the specter of runs on sovereign debt now raised, it is only a matter of time before bigger fish in the sea of nations whose remaining wealth has been used in pathetic attempt at filling a bottomless pit become the next meal for an enterprise whose bankruptcy only grows more consuming. Expect the unexpected when ever-bigger fish are threatened with extinction. So, then, with this year's sweet gains at greater risk of evaporating, might not this be an opportune time for a stampede toward the exits? This possibility seems all the more heightened, indeed, given the fact that, the wisdom of reducing risk exposure and taking profits has entered the realm of public knowledge. Thus, remarks made here back in October claiming 2009 could finish negative versus 2008, even were top to the counter-trend rally off March bottom not registered until December 4th, remain entirely credible (much as would have been the case even without the collapse of Dubai World)...
* * * * *
© 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, November 25, 2009

A Golden Parachute of a Bearish Kind


Although not correlating nearly as closely as Treasury security yields have over the past several years to movement of risk capital into and out of the stock market, there is another perceived safe haven investment receiving a great deal of love and affection these days whose present state — much like the 5-year U.S. Treasury note — serves as a cold bucket of water thrown in the face of anyone so blinded by the stock market's seeming buoyancy to think the worst of the collapse of Wall Street's securitization business is passed, making equity an attractive investment.

Of course, I am referring to that crazy yellow metal — the glittering joy of Monetarist Monkeys possessing kind regard for considerably less conniving aristocrats of the 19th century whose financial regulatory schemes at least had the appearance of being connected to something godly, if only by the rarity of the earthly presence of that object aiding and abetting their restrictive control over the affairs of mankind — gold...


$GOLD

Well, there obviously is no arguing gold's present trend. Yet the same might have been said back in October 2007, too. Indeed, one could argue that something of a breakout in gold occurred then, as also is occurring now. And what other significant event happened in the latter half of '07? Oh yeah! The stock market hit a brick wall.

One other worthy note. When capital-starved interests were hitting up the stock market in '08 ... looking to plug serious holes left by the collapse of Wall Street's securitization business ... they didn't restrict their desperate money sucking operations to equities. They hit up the gold market, as well.

Since further fallout from the failure of Wall Street's credit creating machine remains a serious [and near-certain] threat, one can expect that, along with the stock market likely being hit up again over months ahead, so too the gold market probably will be drained in kind.

(Yet remaining to be seen is how much higher gold might rise before being sold by those desperate for cash. For all I know gold could rise to $5000, then pull back only to $2500 ... while at the same time major stock indexes, soon likely to hit top, inevitably collapse back to levels last seen in the late '80s. In other words, gold prices at present might be a screaming bargain. Judging by recent price action, it appears buyers have convincing reason to believe this, indeed, is so.)


Spot Gold
Gold - Afternoon Fix (Source N M Rothschild)


You might say the gold trend over the past decade adds weight to my thesis that, since the late-'90s stocks have been distributed from strong hands to weak.

Think of it this way...

What is attractive about an unproductive asset like gold in comparison to a cash-generating asset like equity? Unless, of course, equity's capacity to partake of free cash generated via normal business operations is seen diminishing. And is not money flooding into gold suggesting such a view is prevailing?

Therefore, in the midst of gold's rising trend a stock market contrarily trading more or less sideways might correctly be seen as having embarked upon a distribution of over-priced shares into weak hands.




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...

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Tuesday, November 24, 2009

Observations on a 5-Year Flight to Safety


Coincident with the collapse of Wall Street's securitization business — a Greenspan-sanctioned, private sector credit-creating machine equipped with an infinite multiplier — has been a most natural flight into the safety of U.S. Treasury securities...


$FVX

We see here that, both sides of the credit system's "Inflate or Die" mantra find representation in momentary trends in the yield offered on 5-year Treasury Notes.

To wit: whenever credit is somehow, someway, made easy, peasy, resulting in a flood of liquidity in response to systemic threats precipitating from the collapse of Wall Street's securitization business ... Treasuries are sold off, commensurately causing yields to rise. Not coincidentally, this is when the stock market contrarily catches a bid.

On the flip side ... whenever credit is somehow, someway, contracting and deflating ... this as a natural consequence of the collapse of Wall Street's securitization business ... Treasuries are being sought out for safety they offer, thus causing their yields to fall. Again, not coincidentally, this is when the stock market has come under pressure.

So now look at the present state of things. Observe similarities to the latter half of 2008, as well as 2007. The 5-year Note's yield and moving average relationships are of interest here, as are current, transitioning positions of both RSI and MACD ... suggesting a rush into safe, longer-dated U.S. Treasuries could be commencing imminently — this following the recent mad dash into Treasury Bills whose effect drove yields in some cases into the negative.

Keep an eye on this, because the "Inflate or Die" mantra of our global, wildcat financial system most certainly lives on and apparently reveals its increasingly volatile state via capital flows into and out of widely perceived safe U.S. Treasury securities...


One-hour webinar, December 16, 2009, 2:00-3:00 p.m. EST


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, November 23, 2009

Cosa Stai Pensando, Signor Birinyi?


Appearing on Bloomberg this afternoon, stock market psychology specialist Laszlo Birinyi, Jr. made a few remarks I'd like to respond to.

Let's begin with Mr. Birinyi's belief that, among "economists, strategists, and technicians ... there's not a whole lot of actual research — basic research — rolling up your sleeves and digging down and getting the data and coming to the reality ... and that has been a characteristic of the market for some time."

This might explain why we presently find so few investment newsletter writers who are bearish. Yet wouldn't you know it, Mr. Birinyi is not among this group. No sir. And why not? Well, because...

"Technicians have been telling us literally for six months that this rally is not sustainable because it doesn't have volume. ... I would contend if you go back historically you would find volume is not necessarily a significant ingredient of most bull markets."


NYSE weekly

Well, then, shall we call increasing volume over the duration of one monstrous bull market from 1974-2007 but a mere coincidence?

I think not, because the market climbs a wall of worry, and this worry is reflected by an increasing volume of shares offered up for sale. What makes for a bull market is the fact that, this increasing supply is absorbed at ever-higher prices.

True, there often are periods in the midst of rising prices when volume will tail off. And though this condition might not portend imminent trouble, it remains one worthy of concern — a red flag, if you will. Complacency (such as is revealed by a diminishing volume of shares offered up for sale during a market advance over some duration) is a fatal disease at the periphery of risk assets, which is precisely where equity lives.

Now, Mr. Birinyi probably has his own, unique standard for defining what he calls a "bull market." His likely entails a most minimal loss endurance tolerance, and probably requires a much shorter view toward pending possibilities. Yet, then again, one wonders about this given his concluding remarks today...

"The important thing is that our clients get good investment ideas ... and from a longer term perspective we've argued that, this market has a lot of similarities, structurally, to 1982, which means we could carry on for another couple years."

Was Uncle Sam all in with its backstopping of derivative securities in 1982? Did mortgage-backed securities (MBS) even exist then? Was financing of Treasury debt so completely dependent on the kindness of strangers? Was the physical, goods-producing economy so thoroughly decimated? What further de-industrialization now awaits our exporting overseas? Was the consumer so completely buried under a mountain of debt amidst collapsing collateral values?

1982? Cosa stai pensando, Signor Birinyi? What are you thinking?

And furthermore, Signor Mercato Psicologia Esperto, what do you make of the very fact that, as you say...

"We increasingly find the financial press to be more pliant and accommodating, and less penetrating."

Do you suppose there is a reason why this is more so true now than was the case in 1982 — a reason reflective of the true state of the market? Might this be symptomatic of an attempt to attract the dumbest of dumb money into the riskiest of financial assets at a time when systemic risk has never in centuries been so elevated?

I do not overstate the present risk for dramatic effect! The danger is unmistakable.

"Less penetrating" ... as in unwilling to make the connection between the productive capacity of a physical economy and its ability to sustain the viability of finance necessary for its functioning?

"Less penetrating" ... as in refusing to question the very legitimacy of a mountain of casino side bets?

"Less penetrating" ... as in pretending a slow, deliberate effort (or is it deliberately slow?) at imposing a necessary measure of regulatory oversight might be sufficient to buy enough time for the economy to regain stable footing, much as our nation's Treasury Secretary blindly believes inevitable?

"Less penetrating" ... as in throwing out the most ridiculous of trial balloons as could suggest our incompetent Treasury Secretary might better be replaced by Wall Street's worst liar?

And of the aristocratic interests who fortify all things Wall Street — including a pliant, accommodating, less penetrating press — might one also admit that, as a matter of consensus among such self-appointed masters of finance, the type simply would not have it any other way, for these are in fact the philosophical heirs to those whose misdeeds, indeed, precipitated the American Revolution ... and so, therefore, whatever might be done to degrade the principle of a free press will be done, and most skillfully, too, under cover of promise of great fortunes to be made?

Hey, it was a good gig while it lasted, but now we come to the most damning difference separating the present moment from 1982. The nation is in a rage and on the verge of exploding. Just listen carefully to Senator Mike Enzi, speaking on the effort to "reform" (read: gut) the nation's health care system...




"And they're still mad."

Which means a pliant, accommodating, less penetrating press is about as much of an issue these days as is censorship in China. In other words, it ain't 1982, Mr. Birinyi. Rather, it is more like 1343.




Well, well, well ... looks like a courageous effort at hedging short equity positions met today's manifestation of "mutual fund Monday" (which, if you listen to Pete Najarian's comments during today's Word on the Street, apparently has been something of a trend over the past few months). Yet I wonder if too much certainty in this hedged position is revealed?

Might this go some way toward a suspicion expressed here last week, wherein continuation of the 3-month and running circle jerk thus far endured since July's monster short squeeze was thought possible? All I know is, much like the rest of the short side of the trade, I am increasingly loathe to call a top because the talent on Wall Street is in a sweet spot where milking goats requires only a bit more time than is needed for cows.

No doubt, there is much reason to believe that, more downside risk than upside potential exists at the moment. However, this does not mean the market is likely to imminently fall apart. Don't get me wrong. It could. But a trip back down to the lower end of trading over the past few months instead might be in store, followed by still more CME-driven fun (much like today's was but another instance of many we've seen since March bottom) manufactured to facilitate a further offloading of dead equity into some of the dumbest institutional hands on the planet: mutual funds.


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...

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Friday, November 20, 2009

The Mass Strike Revolt is On


Building on the report showing Bill Gross sweating blood in his garden of Gethsemane, everything tonight centers on the other bombshell yesterday to explode in the face of those whose little game, called, "Let's Pretend We're Not Bankrupt," is being thrown into disarray...

JEC HEARING: Financial Regulatory Reform: Protecting Taxpayers and the Economy

First, this man Geithner isn't qualified to be secretary of a bowling league, let alone Secretary of Treasury. Would someone please look back at this man's academic record and discover whether he even took American history? What a hack.

Alright, the gloves are off...

Mr. Secretary! I found the one measure showing confidence in the financial system is not now greater than when President Earth, Wind and Fire took office...


$IRX

They say a picture is worth a thousand words. Well, then, how many more a sound!

Apparently, Mr. Secretary, there simply is neither the time nor the will to wait for the economy to regain stable footing. So, assessing the value of your honor serving this President, sir, Forrest Gump probably says it best.

But seriously, CNBC's Rick Santelli likely nailed the truth of the mad dash to safety in closing remarks made in this brief report broadcast yesterday...




Ah, yes, confidence. Confidence... the longhand version of "con." Looks like Lincoln saw it coming. You cannot fool all of the people all of the time. And now, the people are fit to be tied...




You GO Tea Party Man! We DO want to know where the money has gone! Particularly if to foreign accounts most emphatically located in the City of London. Some of us find it odd that, it was from there the office of AIG Financial Products saddled the company with Credit Default Swap liabilities for which the U.S. taxpayer subsequently was swindled and made to honor at 100 cents on the dollar. It is on this note, too, I should say, better Secretary Gates addressing the Congress on matters surrounding AIG's bankruptcy than Secretary Geithner.

Read into that what you will, but realize just one thing. There is a great rage sweeping across the country. That it is building to near uncontrollable proportions is poignantly evidenced by the treatment Secretary Geithner received yesterday in hearings that, typically are collegial. Representatives are feeling the heat. This is only bound to grow much hotter now that the Senate is foolishly taking up the health care "reform" debate. This week's mammogram report has but stirred the embers of mass discontent and fanned the flames of the nation's rage. What is Senate Majority Leader Harry Reid thinking pushing this "reform" debate forward?

Plainly, he is not thinking. Nor is the President. This, however, does not prevent us...

This media ... this disgusting Tory media indistinguishable from the BBC ... why didn't they bury that mammogram story? A very pointed question, indeed, because in times past that story never would have seen the light of day.

Was it possibly meant to feed popular rage directed against both Washington and Wall Street?

Aha! Judging by the rush into short-term Treasuries, then, some apparently fear a rendezvous with chaos is pending...




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, November 19, 2009

Bill Gross Seen Sweating Blood in His Garden of Gethsemane


40 But He answered and said to them, “I tell you that if these should keep silent, the stones would immediately cry out.”
Luke 19:40

As I was saying...
"Prices can fall of their own weight, but it takes buying to put them up."

Yet the patient bear — whose position is entirely confirmed by a dying, trend-leading NASDAQ — also appreciates how, in the ongoing culling of weak-handed shorts ... he or she might need further endure the stock market's contrived levitation ... whose truth over many weeks has been consistently laid bare.


$SPX

Once again, however, any upside remaining should be rather limited. And just precisely how any further gains might be achieved would be no mystery at all...


Kudos Jon Najarian for insights into short squeeze mechanics that, over a year ago in these parts were thought a likely driver to carry the stock market higher following last year's beating. This suspicion, indeed, proved spot on. For the record, both Jon and Pete Najarian are players whose options analysis I respect because there's usually something valuable to be gleaned from their observations, whether I agree with their conclusions or not. Their collective command over the options world and ability to convey intelligence and strategy with relative simplicity is admirable. That's one reason why links to their tradeMONSTER online brokerage now are being featured here. These two men have put together a gem, so check out the state-of-the-art tradeMONSTER platform. There's another reason tradeMONSTER is a friend ... and you can read about it here. Did you happen to see Bill Gross' November 2009 Investment Outlook titled, "Midnight Candles?" It is a bombshell worthy of Francis Scott Key! You will discover a big picture view harmonious with perspective presented in my Summary Statement of Fundamental Reality. One thing of note is his conclusion that, financial assets at the periphery present a risk too great to justify low yields presently being offered. Pondering this conclusion one realizes that, without increasing willingness to take risk at the periphery, the entire edifice put in place over the past year — the attempt to mimic the Japanese response — in all probability is for naught. This is because prospects for financial assets that, in normal times are considered relatively risk-free (for example, U.S. Treasuries) are in fact made grim by this unattractiveness of risk at the periphery. Think of it this way... What reward is to be gained investing in securities that, in normal times are considered relatively risk-free (U.S. Treasuries and investment grade bonds), when an unending issuance of these securities must be expected as a stopgap to mitigate inevitable collapse at the periphery? Although Bill Gross did not directly say so much, his article's curious introduction and the hour at which his candles are burning really says it all...
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, November 18, 2009

Why No Blowup is Needed for Market to Reverse Course


34 Therefore do not worry about tomorrow, for tomorrow will worry about its own things. Sufficient for the day is its own trouble.
Matthew 6:34

Probably one of the biggest quandaries in the eyes of any bear is grasping what impetus might reverse the stock market's present counter-trend rally and drive equity prices lower. The prevailing sense it seems simply assumes something must blow up.

Now, even though any number of shocks could rock the financial world virtually overnight — lord knows vulnerabilities abound in ill-positioned leverage still light years from being unwound — by no means is an earth shattering event necessary to kick off the stock market's next leg lower. In fact, odds of an imminent blowup probably are as slight as ever. You read that right, and despite it running contrary to what I have been suggesting here lately, all the evidence indicating trouble lies ahead for the stock market still remains very much intact and extraordinarily relevant.

You need but ably consider the following Wall Street adage...
"Prices can fall of their own weight, but it takes buying to put them up."

Everything presented you here for many months now has gone toward quantifying this buying putting stocks up. And the inescapable conclusion reached — confirmed to this very day — is that stocks have been, and continue to be, distributed from strong hands to weak.

Obviously "it takes buying to put [stocks] up." You might think this goes without saying! Yet this point of fact is stated for a reason. Indeed, I have given you simple means to objectively analyze the very substance of this buying. Thus, you are only all too well aware of the incredible weight the stock market is under these days.

If you need more convincing, look long and hard at the extraordinary volume of shares exchanged going into March '09 bottom, as well as immediately thereafter. The simple fact of the matter is some interest was a buyer then. Anyone with knowledge of late-1920s history might reasonably suppose a well-heeled consortium representing a "plunge protection team" stepped in, attempting to save the world in which they and their own do business. Just imagine the pressure they're under right now! Feel the weight of their burden.

Sufficient for the day is its own trouble. Indeed, this bear market's detonator already has blown! The fat lady has sung. It is all over, but for the shouting. The ICU patient on life support in truth already is dead...


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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Tuesday, November 17, 2009

Sudden Destruction in the Light of Day


1 But concerning the times and the seasons ... you have no need that I should write to you. 2 For you yourselves know perfectly that the day ... so comes as a thief in the night. 3 For when they say, “Peace and safety!” then sudden destruction comes upon them, as labor pains upon a pregnant woman. And they shall not escape. 4 But you ... are not in darkness, so that this Day should overtake you as a thief. 5 You are all sons of light and sons of the day.
1 Thessalonians 5:1-5

There's another thing Mr. Buffett ought be thinking about. His railroad investment is no sure thing, not even as a capital preservation play.

The Fast Money traders, too. Their collective thinking entirely disconnected from the reality of a global financial system's bankruptcy ... dressed up in more smiling and winking than the world quite likely has ever seen ... but reveals such vulnerable position in darkness as would be worthy of citation were the flaw in their perspective not so obscene. How can this be?

Truly, words like those above were made for moments like these.


$INDU

Well, there's "Peace and safety!" Or at least that's the hope it seems with the widely-held Dow 30 recently taking leadership in the market's push higher. Looking at this index we see a couple noteworthy disparities, post-July bottom, from those broader measures typically presented here (i.e. $SPX, $NYA, $COMPQ).

First is momentum (MACD) early-August slightly exceeding May's best reading. None of the others achieved this feat. Yet other than this representing a manifestation — a demonstration; a proof — showing ill-placed complacency in equity as an asset class, there's nothing game changing about this particular disparity. The greater love given the widely-held Dow 30 by no means assures equity's peace and safety, although by the Dow's very leadership money behind the move quite evidently assumes so.

Second is the Elliott wave count off July bottom. Inasmuch as the wave count for $COMPQ differs from $NYA and $SPX, $INDU's wave count is different, too. I am just not sure how right now. The only quandary this uncertainty presents, though, is found in possibility the 3-month and running circle jerk thus far endured since July's monster short squeeze might continue a while longer.

Duly note volume characteristics in trading forming bottom, January-March, 2008, as well as that accompanying the subsequent counter-trend rally lasting to mid-May, 2008 ... and contrast this with present circumstance. The relative similarity we see throughout speaks of a like-psychology driving the movement of money ... a like-power to sustain the rally ... and of probabilities a like-outcome awaits.

And yet by the magnitude of money behind present, like-circumstance, the degree to which there might be no peace and safety must be regarded a rather frightening prospect! Indeed, though we may be sons of day, an unimaginable test of our very humanity in all probability draws near...


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, November 16, 2009

Market Melt-Up Meets Y2k New Era Believers


One of the Fast Money traders tonight claimed the stock market is in the midst of a "melt-up." Well, well, is that so? This exact language I used here many, many months ago ... much, much nearer bottom when a melt-up was something to look forward to.

Indeed, characterizing trading now as a melt-up might better be likened to the early-Y2k period when we were in the midst of a "new era of technological progress."

Get it? ... Got it? ... Good!

Now, tell me... If "no one believes the rally" (as some continue claiming), then where are the stubbornly bearish parties whose influence raises this disbelief? We know this much: they're not writing investment newsletters.

We know this much, too: they're not selling their long holdings...


$SPX

Volume once again remained relatively subdued today. With so much disbelief you would think there would be a lot more selling into such strength as we are seeing! Truth is, though, there's a thousand times more hope prevailing these days. This fact is made plain by volume's persistently declining trend since March bottom, revealing the majority believes the rally will continue.

The microcosm of the past month likewise should be seen as but extending a trend that has been in place over the past decade ... wherein highest volume registered during an advancing period never exceeds the highest registered during the declining period preceding it.

We saw this during the advancing period from 2003-2007 in comparison to the market's preceding, 2000-2002, declining period ... and we are seeing it yet again, with the advance off March '09 bottom failing to produce volume rivaling that which was registered during last year's bloodbath. This disparity reveals yet another face of distribution.

The red boxes drawn in the above RSI panel highlight those two prior, CME-driven short squeezes demonstrating gross imbalance between the buy- and sell-side — notably atypical behavior. Each was followed by periods wherein further $SPX advances were considerably constrained — the recent instance more so than the prior. Those behind this are seen dribbling their long positions (as evidenced by diminishing volume) to the sea of suckers who make up the vast majority of investors. Again, such reveals the bear camp is in complete command.

Over recent months since July's rocket higher, relative strength has been persistently fading in absolute terms, as well as increasingly languishing in relative terms, too. Still, though, in each of the three, highlighted, advancing instances following July's launch we see no compelling evidence of such healthy, RSI balance between the buy- and sell-side as typically coincides with a sustainable advance. So, every step of the way higher, not only are accompanying technical conditions weakening, there is no sign whatsoever of any transformation in the makeup of the force behind it. Revealed, then, is the character of a short squeeze from start to finish.


SPX 5-min

This exact same character similarly is presented in the microcosm of the past ten days viewed at 5-minute intervals. Likewise, the greater extreme to which relative strength imbalance successively has been carried apparently was necessary for creating conditions in which remaining long positions might be slowly offloaded (and surely, volume reveals that, slowly is all the market can bear).

Furthermore, and as predicted...


$NYHL
$NAHL

Although both NYSE and NASDAQ Composite indexes today reached new highs, post-March bottom, both exchanges failed to produce such expansion in the number of listed issues registering new 52-week highs as otherwise might confirm the market has further upside remaining.


$CPC

Finally, the short side still remains gun shy ... seen by their apparent unwillingness to take on new short positions hedged with call options. Again, this typically is the setting just prior to a reversal of upside fortunes (see Valuable CBOE Put/Call Ratio Education).

Is something big about to go down? Something big ... like, say, the U.S. Treasury? Might it be time for free market swine to begin dumping their Treasury holdings, while simultaneously firing up such partners in crime here in the U.S. of A. as might dutifully corner the Chinese? Whatever is coming down the pipe, chances are all things will not be what they seem...


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, November 13, 2009

Bear Porn


I am this close to featuring porn clips in an ongoing effort to help shed light on the current investment environment using video. This might lend keener insight into today's seemingly prevailing theme featuring an expectant profligate (I've gotta get back on top, now!) and an accommodating whore (whose initials are CME) ... you know, a pair of misfits turned group action, driving the stock market ever so immodestly higher since early-August peak.

Hmmm. Bet that might get my readership up ... among other things. No, I won't do that. Indeed, my point already has been made ... almost.




Ah! That'll do it. The "bear on bear" scene relayed amidst a raging backdrop, blissfully ignored, is the message clearly being delivered these days...

CME-driven short squeezes whose reality during the greater bulk of the market's advance since March bottom plainly has been demonstrated during those several moments when relative strength (RSI) was taken on a one-way rocket ride (showing profound imbalance between the buy- and sell-side — a most unhealthy condition were this advance's longevity thought assured) ... which action, itself, is proven to have been initiated by the bear camp, this by a diminishing volume of shares exchanged with each new lurch higher: these are realities being blissfully ignored. Yet they entirely speak of great bear on bear action.

Why do these things happen? Why would bears want to squeeze the market higher? Well, just as is true in nature, the reason is, first, because they can, and second, there's something to be gained in the action.

Let this fact sink in: the bear camp is entirely in control of the market's counter-trend rally off March bottom. Were it otherwise, the above cited conditions would not be so glaringly present.

And this is why we should be alert to the possibility some intrigue or another could come sweeping down upon our world, seemingly from out of nowhere, creating conditions putting all bears once again on the same page, and leading to the most precipitous drop ever to hit the stock market. I think the efficacy of this position is lost even on most who are bearish today. That is why, whenever I come across the bearish views of others, having their company does not concern me. More or less none appreciates the probability of spectacular collapse.


Investors Intelligence

Not that the company I keep is an overwhelming force among investment newsletter writers. Stunning how few appreciate the lasting significance of last year's disaster and are instead apparently enamored with this year's turnaround.

"Turnaround," though, is a misnomer — an understatement. The counter-trend rally off March bottom has been a monstrous move with scarcely any precedent! And there's nothing to fear about this? No reason to think some substantial giveback might be in order, even were one long-term bullish? Such a sentiment among investment newsletter writers (who should know better!) surely substantiates my thesis believing those who continue holding their equity stakes are demonstrating poorly reasoned complacency.

This should be particularly alarming given what has been shaping up over the interim of the stock market's counter-trend rally off March bottom. Such is now presenting a notably bearish backdrop...


$NYAD cumulative

Though you can club 'em by the dollar and raise 'em by the penny, this does not alter reality that, despite broad upside participation, NYSE-listed stocks are being distributed from strong hands to weak. This is the message conveyed by the NYSE Cumulative Advance-Decline line, contrasted with the fact the NYSE Composite Index has not yet even reached levels last seen the week Lehman Brothers was taken out and shot (September 15, 2008).

Furthermore, were March '09 a bottom prospectively of lasting import, we would have seen a divergence in the NYSE Cumulative Advance-Decline line at that bottom, rather than confirmation showing NYSE-listed issues more or less across the board were being thrown to the wolves coincident with the NYSE Composite Index falling to new lows.

(Duly note, though, how RSI and MACD measures of the NYSE Cumulative Advance-Decline line's movement were, in fact, diverging at March bottom. To what degree present divergences (beyond what already have registered here, near top) might be further demonstrated remains to be seen. Duly note, too, how the NYSE Cumulative Advance-Decline line, itself, is diverging relative to this week's NYSE Composite Index advance, which, by Wednesday, had come close enough to its counter-trend rally highs as to make the advance-decline line discrepancy a bit more than a curiosity.)


$NAAD cumulative

As per oft-noted NASDAQ leadership ... it's still good. NASDAQ continues leading the U.S. stock market right down the toilet. The recent bout of selling to hit the Pump and Dump stands out like a sore thumb on NASDAQ's Cumulative Advance-Decline line. The sea of analysts chumming the waters with baited claims suggested tech-related businesses are less affected by recent financial turmoil, and so present more promising prospects in recovery from last year's far-reaching disaster, simply finds no basis in reality where the rubber meets the road.

Smart money seeks its own, and apparently discovers none of it in NASDAQ-listed issues. These must be folks who, for example, hear of college campuses banning Amazon's Kindle and actually start connecting the dots. (Bezos might better start greasing some big endowment palms.)

Considering the big picture, animal spirits necessary for sustaining an advancing stock market must — must — be willing to spread a wide net of speculative love to NASDAQ-listed issues. That this is not happening indicates distribution of equity across both major U.S. exchanges is a trend still very much in force.

Judging by disparities noted here today, it is as plain as day all things are not what they seem. And that is why one would remain most wise not only fearing the worst, but further fearing its descent upon the scene in the worst way possible — in a breathtaking collapse seemingly coming out of nowhere...

Bonus Thought

I gave some consideration to the possibility 2009 might end out like 2003. This touches on reader Archer's comment the other day, requesting my thought on money manager performance pressure going into year end...


SPX monthly

Although you might say relative strength is similarly positioned now as then, I will not ignore the larger dynamic revealing building weakness making the present moment less like 2003.

First, RSI divergence at 2007 top versus Y2k. That's a new development. Likewise, it came following RSI's first prolonged trip to the sell-side of its range over the course of 2001-2003, itself among the first-signs of building weakness.

Then, there's RSI confirmation at March '09 bottom. Although similar confirmation occurred at the '03 low versus October 1998 ... shouldn't March '09 confirmation of RSI's '03 low, which itself occurred on the sell-side of RSI's range, be seen subtly significant? This certainly appears the case when similar such confirmations have occurred on the buy-side of RSI's range over past years.

So, now with RSI having reached a point of balance — correcting itself in a market with a confirmed sell-side bias — is not greater risk that, the confirmed selling trend might soon resume?


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!