The same bearish Fast Money traders who had me expecting the unexpected at the start of the month are baffled by the market's resiliency. Their outlook is challenged because, "Price action rules," they say.
No! Animal spirits rule. And guess what? The vanquishing of these over the past decade is the result of distribution from strong hands to weak (such action as continues to this very day).
Yes! Even many big players — white shoe firms — are among weak hands.
And how did these get so big ... and weak? Using leverage, of course ... like never before.
Oh, but they claim to have "de-leveraged!" Well, maybe so. Yet in all probability not nearly enough. Not in the midst of a collapsed physical economy that hasn't produced a surplus in decades, and a debt pyramid whose restructuring (write-downs) have barely begun.
Sorry, de-leveraging likely will continue ... and for longer than most imagine ... as reality in the "inflate or die" equation becomes all the more clearer with each passing month the securitization market remains as dead as Elvis.
Now, not necessarily wishing to be married to any Elliott Wave view looking forward, following is a third alternative in keeping with growing probability the near-term path of least resistance points decidedly lower...
This possibility was discussed some months ago. Same a-b-c, "irregular flat" from November 2008 - April 2010. However, rather than these entirely forming wave (B), it's possible but wave A of (B) is formed.
Wave B of (B) — a 5-3-5 zig-zag down — presently could be unfolding ... and might even bring challenge to March '09 lows.
In light of yesterday's mid-term election year cyclical revelation, this alternate Elliott wave count suddenly seems rather attractive.
Surely, what stands to be accomplished prolongs distribution at what will prove lofty levels ... as well as keeps the March '09 "generational low" suckers in the game some months longer. Indeed, given this prospect only the time dimension of bumps in a dying distribution stands to be extended.
Just how much more what will prove weak hands step up as wave B of (B) completes over coming months largely will determine the dimensions of wave C of (B). Will its advance be a screamer with a short life, or a slow, tired grind higher possibly lasting well into next year?
Considering that, during a mid-term election year a bottom from which proceeded a decent launch higher has developed without fail over the past quarter century, the above, alternate Elliott Wave count appears all the more compelling.
Then, too, having highlighted Friday present similarities (in reverse) to price action last July seen in relation to the 200-day moving average ... then seeing how an Elliott third wave subsequently unfolded last year (i.e. wave 3 of (c) of A) ... duly note that, wave (c) of B upcoming would be much the same an Elliott third wave, too.
As for vulnerabilities precipitating an imminent swoon ... please. (The threat of some municipal bond default ... or a wave of defaults ... has good probability, because the counter-party risk apparently is so encompassing — AIG-like — as to virtually assure extraordinary bailout measures strangling Treasury further.)
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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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