Serving Up Bear Treats ~ The Risk Averse Alert

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...


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.


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...


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.


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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