Advancing Amidst a Relentless Breakdown ~ The Risk Averse Alert

Thursday, December 09, 2010

Advancing Amidst a Relentless Breakdown

Some perspective on five waves up from the market's most recent bottom set on Tuesday, November 30, 2010...

NYA 5-min
NASDAQ 5-min

The NYSE's top could be in (see red channel), whereas NASDAQ's lift to a new high at today's open suggests any reversal lower will have to wait until NASDAQ catches up with the NYSE. NASDAQ evidently still has more upside remaining.

No doubt, last week the NYSE led the market higher on a percentage basis. This week, however, NASDAQ appears to be holding up a bit better. This apparent success at holding interest among the market's second tier, then, presents enough evidence to cast doubt on whether the NYSE has reached its peak off November 30th bottom.

Relative strength's challenge this week of its low set on November 30th likewise suggests the market has yet to complete five waves up. This challenge seen on a 5-minute scale is much like daily RSI's challenge of its low set in March '09 as the market was bottoming in the late-June, early-July 2010 period. With the April-June 2010 period now proven to be but part of the fourth wave of five waves up from March '09, Tuesday's weakness very well could be but part of a fourth wave of five waves up from November 30th.

Now, whether but a nominal advance or something more robust will complete five waves up from November 30th is uncertain. Likewise uncertain is whether the fourth wave of these five wave up, indeed, has even completed.

DJIA 5-min
OEX 5-min

More of the same evidence among large caps additionally suggests only that, still dangerously leveraged interests are hanging on for dear life rather than risking an upset resulting from any decided move to trim their marked-to-fantasy, fraud-riddled exposure. This is about all there is to make of the present, like-manner in which large-cap stocks are behaving in relation to the broad market.

Indeed, this disposition toward stocks at large makes sense, too, given the magnitude of all that is at stake — all that unwieldy debt and derivative exposure whose protective veneer is as thin as Gandhi (and on course for a funeral pyre, as well). Certainly, the market's managed buoyancy helps maintain the illusion that, its underpinnings (running the gamut of leveraged securities) remain viable assets. Yet collapsing physical capacity globally imposes on this illusion's maintenance a harsh reality: nothing has been stabilized by extraordinary measures taken by lenders of last resort over the past few years.

Thus, immediately speaking, who cares how much higher stocks go as systemic stress continues spreading? Just as every prospective top over the past year has demonstrated, there is only so much Benito Juice can do to sustain a rickety financial edifice, when in fact bailout simultaneously serves to wreck the physical economy, hastening its shutdown under present, hyperinflationary conditions.

Looking further out, then, how incredibly spectacular — indeed, unprecedented — might be the great reckoning proceeding from a physical and financial breakdown that, to date, simply is proving unrelenting?

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!