Turning Back the Hands of Time ~ The Risk Averse Alert

Saturday, January 09, 2010

Turning Back the Hands of Time

The other day I mentioned (in comments) the similarity the present counter-trend rally off March '09 bottom has to the market's counter-trend rally from March - May 2008. Let's take a closer look at this.


Price action similarity — both in form and dimension seen in relation to respective preceding declines — is rather uncanny.

I wish it were easier to dig back through prior posts I have made. Many months ago I highlighted this very possibility that, a counter-trend rally off March '09 bottom might resemble the counter-trend rally off March '08 bottom. Anyone remember when this was? Over a brief period and on several occasions, I believe, I aired this view. I'm guessing somewhere in the April - June (2009) time frame, but it might have been even before that.

I also remember highlighting sometime late-2008 the probability that, were major indexes to return back to levels last seen the week Lehman Brothers took a dirt nap (September 2008) resistance was to be expected. Well, here we are.

And just to review... The reason I built my UltraShort ETF position from May - October '09 was because, first, nothing is set in stone — I was not about to pound the table per this like-from-like possibility I am highlighting once again today — and second, market action following the early-January '09 peak freaked me out (for lack of a better phrase) by how suddenly renewed selling set in once certain technical measures (NYSE and NASDAQ McClellan 5% and 10% Indexes in particular) had reached overbought territory. Furthermore, over the interim I was building my UltraShort ETF position a wealth of other technical measures were persistently diverging while major indexes continued to rise. This only served to confirm my bearish outlook (as still is the case today).

One thing I will say in conclusion. In all my twenty-five years closely following the stock market I have never stopped learning something new. I don't expect this will ever change...

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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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