Strong Hands in Action ~ The Risk Averse Alert

Thursday, January 28, 2010

Strong Hands in Action

A demonstration of "Strong Hands in Action" for your consideration...


Pay attention to the "higher lows" marked above...


As you can see, each new "higher low" was matched with wisdom — right fear — to increase Put option hedging of long positions. Likewise, given hindsight, demonstration of such "right fear" indicated a vested interest was buying time allowing prices to drift higher.

It is, of course, my contention this "vested interest" is intermediate-term bearish. These are strong hands squeezing weaker shorts, as well as skillfully trimming long inventory and raising capital to pay for hedges in the process.

But this is neither here nor there at the moment, for you see this "vested interest" is behaving differently at the present "higher low." Long position hedging is seen contracting. Hmmm.

This begs the question, then: have strong hands sufficiently trimmed their long positions?

Judging by reduced Put option buying at this "higher low" it appears so.

Add to this the evaporation of yesterday's relative strength divergence (on the daily) and there's further evidence supporting the possibility top is in. Marked acceleration of downside momentum (MACD) in the course of establishing the present "higher low" is but icing on the cake.

Fast Money
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