Friday, April 30, 2010

Due Diligence re: Goldman Sachs


Several U.S. senators this week called activity involving Goldman Sachs' synthetic CDOs no different than gambling. However, the use of such words as "bets" and "gambling" is an obfuscation. The SEC has charged Goldman with fraud and this is a beast of a different sort.

Gambling involves taking a non-transferable position betting on the outcome of some discreet event. When there was a market for such things as synthetic CDOs, players could anonymously trade their positions in these securities at any time. No such market exists for trading bets made, for example, on the Super Bowl. Likewise, one cannot sell one's "position" at halftime.

So, conceptions involving "gambling" really have no place in the Goldman Sachs case. The issue is fraud, which matter now is expanding into a criminal investigation.

Senators this week also were heard disparaging the social utility of Wall Street's broke down credit-creating machine. So, listen to the voice openly questioning all things bailout and reform, then. This from a body wherein an absolute majority are not up for re-election. A significant development, indeed.

Speaking of financial reform ... if only the year were 1988. Then, proposals to improve capital standards by raising reserve requirements might actually be useful. Trouble is a bankrupt system (whose build-out Alan Greenspan spent two decades at the Fed rationalizing) cannot be reformed without first being reorganized.

In other words, there isn't real capital enough to raise reserves. The global economy simply does not produce adequate wealth. Were truth otherwise, would sovereign nations be on the verge of collapse?

"The already material risks of disorderly bank deposit outflows and capital flights are increasing. The bottom line is simple yet consequential: The Greek debt crisis has morphed into something that is potentially more sinister for Europe and the global economy. What started out as a public finance issue is quickly turning into a banking problem too; and has become a full-blown crisis for Europe."
—Mohamed El Erian, PIMCO (Financial Times, April 29, 2010)

Thus, unlike yesterday's bailout initiatives serving to buy time, today's push for financial reform could be sounding an alarm, because with the globe's downward financial spiral continuing, time for the buying evidently is passed.

Which brings this thought right back to Goldman Sachs...

Escalation of this firm's legal troubles is to the Obama administration's effort at building momentum for financial reform ... as snowballs are to hell. Europe's approaching blowout combined with Goldman's growing troubles rather suggests an unraveling of contemporary arrangements among the public- and private-sector could be at hand even here in the U.S.

Wide-eyed dreamers claim the case against Goldman rests on e-mail communications no more damning than those used to prosecute two Bear Stearns' traders who subsequently were acquitted. However, Goldman's circumstance presents one significant difference: the firm remains a going concern ... flush with assets ripe for the stealing, and then leveraging yet further.

With national treasuries and central banks coming under attack Goldman's political cover is weakening. So, with Warren Buffett now coming to the firm's defense one wonders whether Berkshire Hathaway's insurance businesses are vulnerable to accompanying Goldman Sachs in a lineup of firms being targeted for slaughter, this in a climate of chaos conducive to asset fire sales, a condition whose cultivation was greatly furthered this week.

Something else to think about... Buffett's endorsement of Goldman Sachs could enhance the cover necessary for dismantling the firm. Look at it this way: should fraud have fooled the likes of the Oracle of Omaha — a virtual insider — how might other sophisticated investors have detected Goldman's deception?

So much for due diligence.


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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Thursday, April 29, 2010

Bearish Is How Strong Hands Are Hedged

The game remains the same as ever since March '09 bottom...


SPX 5-min

Strong hands continue taking every opportunity to squeeze weak shorts, while at the same time employing call options for the sake of:
  1. [slowly and deliberately] offloading unwanted long positions (the size of which obviously has diminished, as volume off early-February bottom amply demonstrates);
  2. hedging what now has become a ripe field of qualified short candidates.


$CPC

Strong hands hedge. Were these bullish the CBOE Put/Call ratio would be trending higher. The 200-day moving average reveals quite the opposite, instead.

Thus, strong hands evidently are bearish. Short positions, indeed, apparently are being hedged with call options.

If anything, this is becoming more pronounced, and notably more decided, since early-February ...which is as one might expect this late in the market's counter-trend rally off March '09 bottom.


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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Wednesday, April 28, 2010

A Levitation For The Ages Nears Its End


Behold technical deterioration typical of a five-wave move nearing its end...


$NYA

In contrast to coincident relative strength during formation of the second wave of five waves up from early-February relative strength presently is weakening (as is typical) while the fourth wave of these five waves up unfolds.

With both RSI and MACD — although fading, yes — remaining on the buy side of their respective ranges ... further support is given to the probability that, the market's death defying levitation over the past many, many months has some days and weeks yet to go before the big, bad bear born in 2007 finally awakens.


NYSE McClellan

Still more evidence of technical deterioration typical of a five-wave move nearing its end (in this case five waves up from March '09 bottom, as well as five waves since early-February) ... this seen via the NYSE's McClellan Oscillator and Summation Index.

Here again, though, are measures decidedly on the buy side of their respective ranges also bolstering the likelihood the market could remain levitated for some time before top, at last, is reached.

Yet given such weakness as the Oscillator has revealed over the past month, might top already be in? Should major indexes decisively break below their respective 50-day moving averages, then this likelihood surely would increase...


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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Tuesday, April 27, 2010

Just Another Day in a Shark Pit


One thing I learned today during Goldman Sachs Day in Washington D.C. was I cannot hear members of the U.S. Senate say "shitty deal" enough...




Funny. Seems when the word "Timberwolf" entered the conversation the "deal" hit the fan. This was a little after 11:00 a.m...


SPX 5-min

That's right about when the S&P 500 gapped lower. Interesting, too, is the fact this gap occurred at the lower end of a prospective channel containing the index's advance since early-February bottom...


$SPX

Whether top is in might depend on the frequency we hear the words "Glass-Steagall" over coming days. Among the mysterious purpose(s) of today's Senate hearings — an event Team Fraud took quite seriously, so as to broadcast ten hours of proceedings relatively commercial-free — appears a threat to clean out the toxic crap choking the global financial system.

Indeed, one of the more shocking revelations came late in the day when CEO Lloyd Blankfein practically begged Senators for effective financial regulation. This was right around the time the conversation had turned to the prospect of restoring a Glass-Steagall standard.

Which begs the question: how weak is Goldman Sachs? Were today's hearings but an instance of sharks biting back? Who's getting the "shitty deal" here? A flock of lawyers behind Goldman's middle layer appeared forlorn contrasted to relative serenity buffeting Yoda, both front and back.

It seems the SEC's charges were appropriately played out in today's Senate hearing, as their civil fraud case against Goldman was suspiciously buffeted while at the same time a damage control operation appears to have been erected. This desired outcome is an end made clear in the very suggestion of a return to Glass-Steagall. Such an act would bankrupt everyone, Goldman as well as that similarly vulnerable interest who pushed the SEC button.

Amidst its ground troops, it appears the firm struck back as best it can.

So, then, wha la, now the Eurozone card comes into play.

Just another day in a shark pit...

* * * * *

© 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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Monday, April 26, 2010

Out-of-Character Art Cashin Joins the New High Kick


Another well-known market observer, Art Cashin, went on record today saying, "market technicals are quite strong and nowhere near signaling that you’re near a top," citing as basis for making this claim the expansion in new 52-week highs occurring as major indexes extend into new high ground, post-March '09 bottom...




Well, what pray tell do the likes of Cashin and Gary Kaminsky make of the collapse of listed issues setting new 52-week highs when indexes were bottoming at higher lows over the past six months?


$NYHL

February's anomaly is particularly conspicuous. A bearish divergence was registered ... and yet this fact goes ignored.

Furthermore, we are to believe that, after an absolutely monster advance over the year prior no such leadership had developed as could keep the NYSE high-low differential likewise improving as the NYSE Composite was bottoming at a higher low?

Now, some observers are fond of citing those few-and-far-between issues that survived the bloodbath of 1929-1932 relatively unscathed (for example MMM). So, you would think that, at this point in the market's recovery there would be not only like-survivors, but newborn, leading fliers more or less resisting any general selling pressure such as has developed over the past six months while continuing their relatively undisturbed advance. Where are these leaders?

This subtle matter-of-fact somehow is being missed. However the reality of it indicates that a top is nearer than even some of the most seasoned observers think.

When the likes of a normally reserved and exceedingly cautious Art Cashin claim otherwise, citing evidence that rather shows mistaken judgment, contrarians take note...


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, April 23, 2010

Shades of Complacency


Apparently there were portfolio managers today who got yesterday's word portfolio managers are chasing NYSE leaders...


$NYHL

Another expansion in NYSE new 52-week highs ... and this despite the broad Composite Index NOT reaching a new 52-week high...


$NYA

A first in post-March '09, counter-trend rally history! And a dangerous sign, too. Revealed is increased complacency amidst still further distribution.

But adding weight is NASDAQ...


$COMPQ

You might say this group has a storied recent-history of demonstrating, shall we say, quirkiness at tops ... standing out somehow ... leading by some extreme measure.

What to make of such on-balance selling withheld as could keep the relative strength of NASDAQ's advance at its most positive yet since March '09 bottom?

...and not only that, but for such a remarkable duration!

...and this while momentum continues its multi-month weakening while fading over the short-term, as well.

An advance losing steam hardly seems worthy of such restraint as keeps levitated the relative strength behind the advance. Indeed, complacency best explains this condition.

And this toward the riskiest of U.S. equities (i.e. those listed on NASDAQ)!

... which, by the way, failed seeing today an expansion in the number of listed-issues hitting new 52-week highs...


$NAHL

Maybe this is a case of splitting hairs, but interesting, nevertheless ... seeing this divergence with the NYSE today ... now following NASDAQ's consistent, underlying lag, as measured by its new 52-week highs versus the NYSE.

So, despite today's look of something with legs enough to bring a solid follow-through on Monday, the technical case demonstrating increasing complacency appears likely to rise commensurately...


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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Thursday, April 22, 2010

Yielding To No Bull


CNBC's Fast Money trader Gary Kaminsky gave his two cents today on the expanding number of NYSE-listed issues hitting new 52-week highs ... first, suggesting that portfolio managers' averaging their purchases into the NYSE's leading performers is a "healthy sign" ... then, saying that in the past twenty years never has a massive correction followed when 450 NYSE-listed issues were hitting new 52-week highs.

Now, were we in some large, multi-year bull market, then both of Kaminsky's points might be thought valid. However since October 2007 we have been in the midst of a major bear market, with the advance off March '09 bottom being but a larger-than-average, [bear market] counter-trend rally occurring just prior to a massive decline whose portent, indeed, threatens to be the very stuff generations of souls yet born will one day make legend. As such, then, Kaminsky's sanguine conclusion is entirely misguided.

What he calls a "healthy sign" I call the mark of suckers, because there is in fact real trepidation behind the advance off March '09 bottom revealed via the raw number of NYSE-listed issues presently setting new 52-week highs — the very thing Kaminsky cites as discounting any likelihood of a massive correction anytime soon.

Considered in the midst of a 75% gain in the NYSE Composite over the past thirteen months the raw number of NYSE-listed issues hitting new 52-week highs is, in fact, terribly pathetic ... particularly considering that, nearly 2500 NYSE-listed issues were setting new 52-week lows during the climax of selling in October 2008.

This point I made last week ... and Kaminsky's contrary view rolls off that analysis like water on a duck ... especially when you throw into the mix the same situation — yet even more conspicuously lagging — on NASDAQ.

So, the slow, deliberate transfer of shares into weak hands continues unabated, notwithstanding any strained increase in the number of listed-issues hitting new 52-week highs...


SPX 5-min

The above view details what prospectively might be upcoming in the formation of the fourth wave of five waves up from early-February bottom. The degree to which "see no evil" believes its view forward (a.k.a. fantasy) possesses credibility by the still-solidifying public-private partnership now masking as financial "reform" is evidenced by this week's buoyancy following last Friday's SEC bombshell charging Goldman Sachs with fraud.

Dennis Gartman might have been satisfied that, the President didn't bring out a "hammer and sickle" in his speech today at Cooper Union in New York City, but does the swastika the President waves in assuring continued bailout of a hopelessly bankrupt enterprise raise even an eyebrow? Does the human sacrifice required to keep appearances of solvency intact for a few more months (which is the best that Senator Dodd's "reform" measures might accomplish) cause anyone to blush?

Look even now at the human cost. This will only worsen as a consequence of the current legislative attempt at financial "reform." Let's be clear. The principal of this effort mainly is meant to sanction asset grabs for pennies on the dollar so that added leverage can be tacked onto a financial system already grotesquely leveraged. Thus, the President's suggestion the taxpayer will be spared further bailouts could only be true were he acknowledging the likelihood even greater numbers of Americans will lack an income on which to even pay their taxes.

Suggesting a pack of thieves offer legitimate value to the nation's economy ... whose business', therefore, must be spared ... is the epitome of such corruption as gives Tea Parties much energy. Signaling financial power will not be retrieved (as it rather should be — see Article I, Section 8 of the U.S. Constitution) from reckless enterprises whose former claims of capacity to self-regulate have become today's laughing stock is the mark of such weakness as has turned countless Presidents into silly, inanimate puppets of imperial finance — the now terribly vulnerable, eternal enemy of the American republic. And moving forward with legislation meant to further legitimize an enterprise rife with fraud — and this at all costs, human and financial — represents such surrender, practically speaking, as all Americans were warned about so many years ago...
One of the great American industrialists of our day—a man who has rendered yeoman service to his country in this crisisrecently emphasized the grave dangers of "rightist reaction" in this Nation. All clear-thinking businessmen share his concern. Indeed, if such reaction should develop—if history were to repeat itself and we were to return to the so-called "normalcy" of the 1920’s—then it is certain that even though we shall have conquered our enemies on the battlefields abroad, we shall have yielded to the spirit of Fascism here at home.
President Franklin Delano Roosevelt, 1944 State of the Union Address

Yield away, Mr. President. Your fantasy about the so-called "free market" is bull...


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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Wednesday, April 21, 2010

Peaks We Meet With Volume


Among several recent variations on an Elliott wave count from early-February bottom has been the following (which now is appropriately labeled to present)...


$SPX

It is the second wave's "running correction" possibility that was presented previously, with the third wave now appearing completed. This view likewise remains in keeping with the possibility that, levitation will continue for some few-to-several weeks more still ... as lately has been thought likely.

Trading this week simply lends further reason to believe the market's advance since early-February is not yet complete. Still, the view above also suggests, near-term, a downward-biased correction probably is immediately in store before this, the final advance off March '09 bottom, at last is over.

What's waiting now is such corrective action as takes RSI below its low reading registered in late-February, during formation of the second wave of five waves up from early-February. Such an event, of course, would confirm the above Elliott wave count by providing technical evidence the advance off early-February bottom is, indeed, weakening.

Also going some way in raising the above Elliott wave count's probability is the recent volume spike. This has been a common occurrence at third wave peaks since March '09 bottom...


$SPX

One other worthy note, too, is how volume spikes at third wave peaks mark the area near where subsequent fifth waves ended. So, any further upside in the advance off early-February bottom appears rather limited here.

Yet with all due humility, completion of five waves up from March '09 could bring another 50-100 points to the S&P 500 (this per Elliott Wave Principle "channeling guidelines" applied to the S&P 500 on logarithmic scale).

As you can see, all other things technical remain unchanged. Momentum (MACD) continues its long-enduring fade ... and relative strength presents the mark of suckers being slowly fed every last bit of dead equity — the likes of which apparently is being most decidedly sought after now, at this late hour. Suckers are, indeed, famous for exhibiting such marked interest at tops.

As ever before over recent months, then, the market's true, unhealed state awaits but completion of five waves [up] since March '09 bottom. Pressure built up in broke down, global systems (financial in particular) likely will find release in stock markets worldwide ... which probability, of course, has only been increasing ... while remaining absent has been any indication something prospectively less devastating might develop.


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, April 20, 2010

On Goldman Pond


To anyone thinking that, in six months time civil fraud charges against Goldman Sachs will be a distant memory...

Put your home on this list. The cloud fogging your view forward, today to election day, probably is best explained thus.

In other words, you're just not thinking straight. You're underestimating popular rage ... and political opportunity to keep the casino running via a motion that simply must throw another big sacrificial goat into the volcano, if popular support for further consolidation of the fascist union between government and private finance is to be secured, as it must. This is how truly bankrupt we are, and y'all have made careers denying this end was the inevitable consequence of financial deregulation. Welcome to your sheering, then.

It is little wonder most simply assume public-private partnerships will operate to the benefit of all. Unfortunately, we are long past the point where physical capacity provides enough free capital to keep current the mountain of liabilities built over the past twenty-plus years — most of which are pure gambling debts with a sliver of equity backing. The best that can be done from here on out (up to inevitable systemic bankruptcy reorganization, that is) requires grabbing for pennies on the dollar a rapidly shrinking pie of cash-generating enterprises and levering their revenue streams in an effort to effectively "paper over" collapsing "assets" presently choking balance sheets far and wide.

The operative phrase is "pennies on the dollar." And as 2008 demonstrated, this is most quickly accomplished with a super-sized dose of chaos.

To this end financial "reform" can only serve to buy time for keeping up appearances [of the solvency of the remaining arrangement]. The entire global financial system all too likely will remain entirely vulnerable — bankrupt — and capable only of further dragging down the physical economy. These are the financial facts, Jack, and no rush to buy the i-Pad will change this. Indeed, in these parts the focus on such businesses "firing on all cylinders" ... like dead money Intel, and now, dreamy Apple ... is seen fitting the character of a most dangerous moment as now finds among very visible mainstream consensus woolly sheep who simply fail to fathom why Goldman must be thrown to the wolves.

Suddenly, Goldman's relatively recent public offering (1999) begins to raise suspicion the whole thing was part of a setup — a trap meant to cultivate to the greatest extreme possible the managerial mindset capable of destroying the firm, thus putting it in position to be gobbled up for pennies on the dollar at the appointed time. The SEC's indictment reveals just how successful this effort was.

Probably more than wonder whether the SEC's fraud charges against Goldman are a "Hail Mary," soon to be forgotten, wiser minds (a.k.a. "strong hands") likely only contemplate if Morgan Stanley can be far behind.

Yet far more concerning ... particularly in light of the long-running Goldman Sachs - Washington D.C. revolving door ... is prospect leading to the U.S. Treasury's effective demise. Indeed, the SEC's out-of-character, sudden attack on "Wall Street" fraud begins to make most sense when the real objective is seen aiming at ultimately weakening Treasury further, making it all the more prostrate to the beast of corruption it nurtured ... and this right on the heals of Goldman's intended shredding.

Considered in the context of such present, massive imbalances as finds well over 20% of adult Americans un- or under-employed ... residential foreclosures continuing to skyrocket ... and commercial foreclosures increasingly joining the fray ... one can scarcely imagine what a weak and prostrate Treasury will mean for the average man.

Truly, equity has never looked more dead...


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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Monday, April 19, 2010

See No Evil Says SEC Throwing a Hail Mary


This today from Barry James of James Investment Research...
In June and July of 1987 we also saw a 7 week market advance. In fact, I remember preparing our "Time for Caution" study in June. Back then, we got a similar response to our caution that many are having now. We know we aren’t right all the time, and even though that 1987 study was met with skepticism, we would have been more correct if we had written "A Time for Panic." Still, our balanced accounts fared well that year with double digit gains in spite of the market declining 40% in 40 days.

Why do we think it is still a time to avoid the current band wagon? First, insiders are selling at an alarming pace, about 25 shares for every share they purchase. Second, to quote Jason Zweig, "Investments don’t become more attractive after prices go up." Third, what good news there is, it is already out, be it earnings or economy. Fourth, enthusiasm is running too hot for our blood; the VIX was recently at levels seen at the market peak in 2007. In addition, the Put Call ratio and 76% bullish sentiment readings are better signs of a mania than a market bottom.
I don't know about "investments [not becoming] more attractive after prices go up." There is a case for disputing this point. Much depends on how strong hands are positioned.

Neither would I claim "what good news there is, it is already out, be it earnings or economy." On the earnings side many a financial firm and bank stand as living proof that, mud possesses greater transparency (allowing any fairy tale to be spun for the sake of sound appearances). Per economy, there is but one aspect that matters: private sector capacity to infinitely print money ... a power that lies frozen in the dead securitization market. Everything else "economy" built upon a foundation of grotesque leverage is but another functional fairy tale, wherein with one turn of the page awaits another nightmare. This was the lesson of 2008 whose story is not ended.

The bear case stands on a dysfunctional credit system existing atop a collapsed physical economy. Who better than insiders would understand the practical consequences of this condition?

Yet in keeping with a fairy tale theme are suggestions the SEC is throwing up a "Hail Mary" in leveling charges of fraud against Goldman Sachs. "See no evil" strikes again, cultivating a climate conducive to offloading more dead equity. Sly dogs.


SPX 5-min

So, in light of a relatively subdued performance in all things widely-held (in particular those components of the Dow Jones Industrials) ... performance of broader indexes (like the S&P 500) compel a view suggesting but a first wave of five waves down unfolded over the past three days.

This presents no meaningful change to the Elliott view presented Friday. A fourth wave (complex in form and with a downward bias, alternating in complexity and bias from the second wave) of five waves up from early-February bottom is seen unfolding. The still ongoing counter-trend rally off March '09 bottom could endure for some few-to-several weeks more, it appears.


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, April 16, 2010

Innocent Until a Jury With a Pulse is Seated...


Shark on shark action anyone? A door leading to this end was opened today.

Timely, too, was Wednesday's question asking whether leadership in all things bankrupt was a setup. Today's news and reaction to it surely makes it appear that way.

So, what push-back against the SEC's exposure of Wall Street fraud might now be expected ... affording today's critically altered dynamic time to be properly digested? Days and weeks ahead might just mark a moment when silence will be anything but golden ... while, contrarily, assuring words claiming financial fraud is well-contained possibly only go so far as to bring sharp focus on history's next trapped Alan Schwartz.


$SPX

When in doubt, get out they say. This happened today in a rather noteworthy way ... so with a crescendo, too, did a week evidently spent distributing shares conclude. Elevated volume registered these past three days while the market effectively turned over speaks, well, volumes about the manner in which strong hands continue working to buy time in order to reduce long positions.

So, give this week's reversal of fortunes a weekend to simmer, and there's probably a good chance we'll see a bit more pressure following today's thumping. Then, subsequently, another bout of "see no evil" could develop (such as for many months now has been an overriding theme) and the last of dead equity might finally be transferred into weak hands.

The slightly altered Elliott wave count you see above reflects this scenario. Its likelihood is increased by relative strength's recent resilience, as well as by its collapse today. Both conditions support the near-term probability that, straight ahead might lie a brief period wherein final, "batten down the hatches" adjustments are made ... the likes of which were further necessitated by today's new shade of a well-entrenched dynamic whose intermediate-term prospect all the more threatens to shatter the core ingredient sustaining finance: confidence.


God's work? This apparently was delivered today ... when with mid-term elections approaching, extraordinarily vulnerable political cover at last showed some sign of finding religion people might actually believe in ... the likes of which strong hands rightly should fear in a day when little sympathy exists for the devil who is formally charged with fraud today. 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, April 15, 2010

Serving Up Bear Treats


So, about those "certain technical aspects" surrounding yesterday's rally that, initially, were thought out of place...


$NYA

There was Big Board volume finally accelerating on an up day ... out of the blue ... this after a rather enduring rally (off early-February bottom) featuring relatively diminished volume (and, therefore, selling interest) all the way higher ... to now.

Then, yesterday, selling interest — seen as that lot of strong hands steadily distributing long positions since March '09 bottom — at last picked up its pace ... much like at several peaks over the past year. Yet, once again, fewer shares than at peaks previous were unloaded. Thus, strong hands appear all the nearer completing their distribution.

Remember, lack of selling interest while indexes advance — a tendency that for the past nine months only has grown more conspicuous — is seen demonstrating fearlessness that, at present all too likely is born of an investor's worst enemy: hope. As you know the market climbs a wall of worry, and this is revealed by increasing numbers of shares consistently offered up for sale.


$COMPQ

Another technical curiosity occurred on NASDAQ yesterday. Yet could animal spirits among the dumbest of the wild kingdom be more graphically portrayed? Who else but suckers would bring relative strength to accelerate so ... from such an advanced level already ... so far along in the rally off early-February bottom (let alone March '09)?

Are not suckers the type typically found charging in at top? Does not yesterday's [short-squeeze-like] RSI spike demonstrate their march?

So ... Big Board volume and the relative strength of NASDAQ's advance yesterday were among those "technical aspects" initially bringing me to scratch my head, wondering whether something quite unexpected had developed.

Yet all things technical rather are seen still quite fitting of but a counter-trend rally — a bear market correction whose completion appears all the nearer ... and all the more so than at any time over the past nine months.

Indeed, technically speaking, as far as counter-trend rallies in larger bear markets go, we have been here before...


$NYHL

The market's [counter-trend] rally from January-May, 2008 likewise saw an expansion of NYSE-listed issues hitting new 52-week highs straight into that correction's peak.


$NAHL

And the market's counter-trend rally from January-May, 2008 also saw the number of NASDAQ-listed issues hitting new 52-week highs significantly trail the number of NYSE-listed issues simultaneously doing the same. Quite the opposite would be the case were animal spirits prevailing among strong hands.

Furthermore, with the number of NYSE- and NASDAQ-listed issues presently hitting new 52-week highs now exceeding levels both exchanges registered at top in October 2007 ... a certain measure of misplaced optimism one might expect prior to a catastrophic unraveling — one slated to dwarf the disaster of 2008 — is seen demonstrated.

Likewise, one tune sung here for some time now deserves another bar: a relatively small percentage of listed issues have led the way higher in the market's monster move off March '09 bottom ... and this fact is made all the more graphic when one considers how many issues in '08, relatively speaking, were thrown into the trash. Thus, there is technical justification for characterizing the market's rally since March '09 as one where suckers have been spoon fed the larger percentage of laggards.


$NAAD cumulative

You might recall my suggesting NASDAQ's rally off March '09 bottom is displaying the same misplaced leadership as was demonstrated July-August, 2008...

Interesting to see NASDAQ's cumulative advance-decline line likewise behaving similarly now as then. Finding disproportionate Composite gains being sustained once again by relatively few issues — with this same condition having presaged steep selling in '08 — further substantiated is an extraordinarily bearish view.

Indeed, being fearful NASDAQ's Composite Index might collapse back to levels last seen in 1987 — that is to the vicinity of 300 — a more compelling technical configuration substantiating this likelihood is difficult to imagine.


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...

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Wednesday, April 14, 2010

When Bankrupt Firms Lead the Way Higher...


I was scratching my head over certain technical aspects surrounding today's rally ... until the not-so-subtle truth behind it hit me...

Banks +3.40% and Financials +2.59% ... essentially leading the way higher? These fraud-rife, fantasy-filled bastions of irresponsibility taking charge on a most surprising day delivering appearances of a breakout following endless weeks and months demonstrating nothing but broad, underlying technical weakness?

This begs the question: is someone being set up? Could it be Mr. "Banker of the Year 2009" whose business only shows signs of loan delinquencies subsiding? One wonders how durable is JPM's [supposedly] improved position with home foreclosures in Q1 2010 up 35% (a record) from Q4 '09.

One also wonders given the relentless continuation of the physical economy's collapse just how long the carry trade can last. Maybe a net exporter of physical goods like Japan can get away with such monetarist debasement as has persisted there for twenty odd years, but here in the U.S. we haven't the luxury of export-oriented industry whose products find commanding global demand, particularly now that the securitization market has gone the way of Elvis. Thus, cash flows to leverage in an effort to postpone inevitable systemic insolvency simply escape the capacity of the United States of America ... the Fed and Treasury's momentary game of make-believe notwithstanding.

So, despite a few, unexpected technical surprises, sufficient is today's demonstration of "all things are not what they seem" coming at a moment when five waves up from March '09 bottom appear very near complete.


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!

Tuesday, April 13, 2010

INTC: Still Dead Money


With all the after-hours excitement surrounding Intel and its Q1 earnings report supposedly showing the business "firing on all cylinders," it is high time someone distinguish the business of manufacturing microchips from the business of investing. Here's why...


company chart (INTC)

From its Y2k top we see a 5-3-5 wave down to October 2002 bottom. Then, from there a 3-3-5 corrective wave up — a counter-trend move whose final leg (i.e. the fifth wave of five waves up from March '09 bottom) appears set to be completed in response to the firm's Q1 earnings.

So, from Y2k top it appears Intel has formed waves A and B of an A-B-C corrective wave, with the worst of selling still yet to come. The question is, then, what good is a business firing on all cylinders when from an Elliott Wave perspective the trajectory of its stock price continues pointing down?

One good decade dead money deserves another.


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, April 12, 2010

Sheep in Line for Fleecing


Among Fast Money traders there is agreement that, cheap risk premiums better afford opportunity to hedge long equity positions. Insurance is at its cheapest in many months...


$VIX

So, then, why should a market +70% off March '09 bottom perpetually command fewer insurance takers?...


$CPC

Consider the trend of the 200-day moving average of the CBOE's Put/Call Ratio...

You might say the long trade largely consists of players who can ill-afford to buy even cheap insurance. Or you might say the consensus sees less need.

Either way, objective measure of the mindset and means of those long equity quite adequately reveals sheep in line for a fleecing (should history be a reasonable guide, rather than some technical illusion as most players these days by fate claim to value).

One other thing to think about...

With wealth concentrated in fewer hands that, now are less well-hedged, how much more rapidly might a relentless, self-feeding death spiral ensue?


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!