A Bull And His Money Are Soon Parted ~ The Risk Averse Alert

Wednesday, July 14, 2010

A Bull And His Money Are Soon Parted

Keeping to a recently expressed view essentially stating that, wave (c) of (2) is likely to relentlessly proceed toward its final objective, moving ever higher more or less in a straight line, today's trading offers some insight into how wave 4 of (c) might likely form...

OEX 5-min

As you can see, selling this afternoon impacted RSI in the manner anticipated. Assuming wave 4 of (c) of (2) presently is forming, an RSI reading weaker than the weakest registered during formation of wave 2 of (c) (a week ago Tuesday) is to be expected. This was accomplished today.

Yet given increased RSI weakness over the past week now while the market pressed higher, it seems unlikely wave 4 of (c) was in fact completed today. Instead, we probably are looking at several more days of choppy trading in a range with a rising bias before this is accomplished.

You might recall that, during formation of wave C of (B) from March '09 - April '10 the fourth wave likewise had a rising bias. There is every reason to expect the same sort of thing here.

Lord knows weak technical underpinnings — persisting yet again today — still have room for further improvement. This is likely to occur as waves 4 and 5 of (c) form over days ahead. Over the interim those noted technical disparities nevertheless are likely to remain intact, no matter what improvement might register during formation of waves 4 and 5 of (c) of (2).

Fundamentally speaking, strong hands orchestrating distribution of dead equity recognize the importance of maintaining appearances in order that every last sucker be drawn in. These days time is a most critical element. It simply takes a lot of time to drum up sufficient confidence necessary to coax a bid amidst perilous circumstances well-understood by 95% of serious observers who generally do not appear on CNBC.

How does one know the likes are out there, weighing on the market's upside prospects? Volume tells all.

Now, those frightened by events since 2007-2008 might not be aggressively selling their long interest. However, they most certainly are not adding to it! And what do we know about this? What is May 6th's lesson?

"Prices can fall of their own weight, but it takes buying to put them up."

Without increased buying standing to counter any prospective increased selling — neither of which for years now has been in evidence during advancing periods — every single contrived rally (such as the one we are in the midst of now) is doomed to fail. Technical circumstances may facilitate skillful deception, but reality requires increased buying for any rally to have staying power.

So, over days ahead as every jackwagon under the sun animates the dead in terms only true incompetents could find meaningful, take pity on their blindness and don't be ashamed if you salivate a bit, too. After all, these are the fools who will be selling you their shares sometime over the next couple years at prices deeply discounted from today's levels.

Fast Money
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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.

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