The Risk Averse Alert

If ever there were a song unintentionally parodying the present moment, this one is it...


These past couple days CNBC has been singing the Alan Schwartz lullaby as though the way to get back homeward might be more easily found with signs embossed with a circle and line drawn through it. Be it big bank failures, the Euro-zone's demise, the foreboding state of U.S. and U.K. credit, do not cry, sleepy darlings, let golden slumbers fill your eyes. Well, not me because, technically speaking, something's not right... There have been a couple, notable prior instances when the momentum of put option hedging suddenly went through the roof following a market sell-off, indicating that hedged, long equity support had formed. These I've marked above with red dots. Yet the very fact the momentum of put option hedging was surging demonstrated there were underlying problems so serious, not even a marked increase of hedged buying support could keep the market from falling further. This was the lesson delivered in August 2007, and then again in October 2008. Curiously, a similar setup is seen forming right now, too. The question is, then, could this be signaling an imminent swoon? Here's a chart of the S&P 500, so you can get a better sense of this... Duly note the similar, negative position both RSI and MACD find themselves now as they did in those two prior instances. Also take a look at this from the perspective of the Bullish Percent Index, whose "oversold" position last week was thought to be increasing the likelihood the market would bounce... Suddenly, conditions do not appear so "oversold." They rather seem not very different than those two prior instances. They rather appear just plainly negative. Given this background, then ... and a fourth straight day spent in an ill-disguised circle jerk conducted amidst a vast majority apparently complacent in their golden slumbers (volume tells all) ... the present danger is clear. Collapse, indeed, might be drawing near. © 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!