Zen and the Art of Faking It ~ The Risk Averse Alert

Friday, September 24, 2010

Zen and the Art of Faking It

So, have you come to see Elvis is dead? Or are a flood of dolts — lost in the past — intimidating your keener sense about the stock market's precarious state — its most perilous in many decades?

Surely, nothing about today's lift was unforeseen...


Levitation that began on September 13th when the NYSE Composite Index jumped above its 200-day moving average — something forecast to evolve in a fashion similar to what followed August 1st's jump — has developed precisely as expected.

Momentum (MACD) — still fading — now is seen flattening, just as it has at every top this year. Like clockwork, too, upon today's rise to a new high off late-August bottom relative strength (RSI) is seen diverging, further confirming that, weakness is building.

A multi-month corrective wave forming following the market's initial decline from April top clearly is ending, and a crushing leg lower is imminent. Fast Money traders — unanimously bullish following today's rally — "get it" no more today than they did early-July, when wiser then was expecting the unexpected while they stood united in bearishness.

One other thing worth noting above...

Despite a sizable lift off Q2 bottom going into the latter half of June, the quarter still ended very poorly. Indeed, following today's rise we appear at a point quite similar to Monday, June 21st. Thus, in but a mere matter of hours a strong reversal lower very easily could commence.

If September should end on a sour note (a mere four trading days from now) do not be surprised, then. The set up for disaster is complete. The next five weeks could be among the market's worst ever.


Trading on NASDAQ confirms the peril. The sudden leadership of this more speculative class of equities — particularly since September 13th — reveals something of the same depth of complacency underlying stock trading much as was present in August 2008.

NASDAQ's leadership over the NYSE at this point, too, is all the more conspicuous when you have a look under the covers...

$NAAD cumulative

Hello death spiral. If this is leadership, stocks are doomed.

Really, though, the market's frail state is best seen contrasting cumulative advances-declines on the NYSE...

$NYAD cumulative

It's the same old, same old. NYSE-listed issues are being bid higher by the penny after being throttled by the dollar. That's why the NYSE Composite Index continues lagging so badly.

If the mountain of advancing issues off March '09 bottom were being built by strong hands accumulating shares, then their presumed buying interest — apparently still growing — certainly would not be expressed so consistently in small dollar increments, and this for such an extended duration.

Animal spirits rich enough to deeply touch NASDAQ simply are neither present, nor building. Animal spirits on the NYSE are a capital-poor display. Such meets a multitude of technical indications supporting an Elliott Wave view forecasting a steep decline straight ahead.

If you have been checking on evidence cumulatively presented here, then you see with your own eyes trouble looms. Not one thing has developed to challenge the perspective taken on a number of technical measures. You could not ask for more certainty about the risk of a serious sell-off straight ahead. These are times when aggressive trading is made a low-risk proposition.

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!