Friday, February 26, 2010

Awaiting the Next Link in the Bankruptcy Chain


The past six months afloat might likely continue for as long as possible ... particularly given how far credibility of the most vaunted financial institutions has fallen from zenith (which is not a good place to be while the alpha around you-ro relentlessly implodes). In other words, the spirit of things right now simply appears get while the getting still is this good, because the world as we once knew it is no more.

Every new day, it seems, delivers some truth further confirming the riskiest of financial assets are lesser bargains amidst an excruciating debt whose burden still grows ... though today on favorable terms, and tomorrow who knows ... all is amidst a physical capacity increasingly facilitating hoarding rather than such productivity-enhanced activity as might sustain the viability of grossly swollen obligations, let alone that colossal mountain of derivative financial claims whose greatest present value could only be to detonate some crisis or another likely furthering yet another swindle ... the very sort of thing whose likelihood most mainstream folks still believe a distant, if not remote, possibility.

Not me. Technically speaking, there's fine reason to fear the Bear-Lehman-AIG-Fannie-Freddie chain could soon lengthen. Look all around. Then, weigh denial.


$SPX

So, the 200-day moving average could prove a pivot point over days/weeks ahead. For the time being, given the past six months' time-buying accomplishment, expect support. Were the next link in bankruptcy's chain weighed in pounds, say, then the 200-day might yet give it up with a gap lower. This prospect I mentioned a few weeks ago. At this point, too ... and in keeping, again, with the past six months ... it seems prudent to suppose any move below the 200-day moving average might follow with recovery right back to it.

Consider this prospect in light of Wall Street's Christmas present to the sucker camp, offering record sums of hopelessly insolvent bank equity. Of course, getting these secondaries to fly required support ... which willingness apparently lasted all of a month. Then, come mid-January some support went bye bye. An effort maintaining the illusion of value in the banking system has commenced ever since.

This sort of financials-directed action (occurring on an increasingly down-sloping trajectory) might accompany broader market moves over the immediate period, and serve to regulate stock index performance in relation to 200-day moving averages, as the market turns lower reasserting the bearish trend begun October 2007.


SPX 5-min

Following up on yesterday's brief comments it appears relative strength divergence likewise is keeping to Wednesday's script by the manner in which continuation of Thursday's lift is accompanied by a weakening RSI.

So, today the stage was further set for a fall I suspect will find support around the 200-day moving average. Whether there is a little more upside remaining to the bounce of the past two days and whether last week's peak holds or not, we should see weakness grow over the immediate period.


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.


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Thursday, February 25, 2010

Look Up, Look Down, Look All Around


Same test, different day....


SPX 5-min

... And in volatility's pickup another RSI divergence. We see the type of excited trade typical of weak moments. Looks like she's going down.


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.


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Wednesday, February 24, 2010

Banking System Still Insolvent: Bernanke


How many times does the guy need to appear before Congress to test whether the legislative branch remains spineless? Check.

Or is Congress just dense? Bernanke sang the same old tune: the banking system will remain crippled in its insolvent state for as far as the eye can see. Yet how many times must he say it? And what are jellyfish to do? Pretend government should be run like a private household? How colonial. Fits well with solar panels and windmills, too.

(Thin on representative leadership we are. To its credit, though, Congress is earning its paycheck this week with its effort to make some of the finest built cars in the world cheaper for Americans. Kudos! And hat tip to the British school.)


SPX 5-min

This morning looked like one short player guaging long inventory in the pipeline ... the sort still biding time on Kong's every word.

Diverging RSI is foreboding. Thus, a little more alive today is possibility an Elliott a-b-c corrective wave [up] from early-February's low already completed 2 or 3 days ago ... and a move back down to those early-February lows has begun.


$SPX

At this point in a multi-month momentum fade (see MACD) we find similarity to the state of things last February (2009). In light of the fact that, in 2009 momentum had been improving over several months (yet still negative), consider the magnitude of the loss highlighted above despite this. Then consider what more might be in store in light of momentum's persistently weakening state (yet still positive) since peaking in May '09.

Making the present moment rather compelling is the fact that during January 2010's decline volume exceeded that registered during January 2009's fall, and now this is being followed by conspicuously meager volume accompanying the most recent bounce.

If there were a time when a steep decline might come out of nowhere, this could be it...


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.


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Tuesday, February 23, 2010

Hanging By a Thread


Looks like the bounce off early-February bottom (at least the current leg of it) might be over...


SPX 5-min

Noteworthy, though, is the fact support today was found above the point of breakout of "a third wave of a third wave" (whose unfolding corresponded with RSI reaching a maximum during formation of wave c). Today's constructive $SPX-RSI divergence further suggests sellers might take a couple days only slowly feeding shares, bringing indexes more or less to drift.

Of course, this assumes wave c might be completed, and a decline toward the 200-day moving average, minimally, has commenced.

There remains the possibility wave c is not completed. In this case a final advance once again challenging the 50-day moving average appears the likely, best outcome.




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.


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Monday, February 22, 2010

Bounce Nears Completion


With the volume of shares exchanged persistently diminishing during the past week's market advance, odds remain we are amidst a counter-trend rally in a larger decline from mid-January top. This counter-trend rally likewise appears near completing...


SPX 5-min

Very typical RSI accompaniment justifies the above Elliott Wave count. Thus, a well-anticipated a-b-c correction of five waves down from mid-January is seen nearing its end.

Up to now this corrective wave unfolding over the past couple weeks has been labeled wave 2 of five [larger] waves down from, again, mid-January top. Yet it's possible the corrective wave thus far unfolded is but wave a of 2 ... leaving wave b [down] and c [up] still to develop before wave 2 is completed.


$SPX

Take the S&P 500's 200-day moving average into account in considering a possibly prolonged corrective wave developing over the next several weeks...

Now, waves b and c of 2 might form entirely above the 200-day moving average. Contrarily, wave b [down] might take out the 200-day, with wave c rising right back up to it. This latter scenario in particular would be a fine set up for a steep sell-off to follow (i.e. wave 3 of five waves down from mid-January top ... tentatively slated to challenge March '09 low).

It's also possible wave 2 is nearing completion, taking a simple a-b-c form. Thus, wave 3 down soon might begin unfolding. Maybe the first and second waves of wave 3 will hold the S&P 500 above its 200-day moving average ... or maybe not.

The point is there are several possibilities once wave c of an a-b-c corrective wave unfolding over the past couple weeks is completed. Obviously, all signs still point lower (and how).


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.


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Friday, February 19, 2010

NASDAQ Projects a Great Disappointment


Yesterday's McClellan Oscillator view presents evidence this week's advance is from Elliott Wave perspective third-wave-like. Specifically, wave c of 2 (of five waves down), most simply, is thought to have unfolded (as seemed likely last Friday).

As you saw yesterday, both McClellan Oscillators presently are behaving very much like each did during third waves that unfolded over the duration of respective post-March '09 counter-trend rallies. Wave c of 2, therefore, is confirmed by this.

More critically, this increases possibility top was reached mid-January 2010 — a point of view particularly bolstered by a many months-long deterioration of both NYSE and NASDAQ McClellan Oscillators up to that moment.

So, here we are ... at the precipice it seems.


$NYAD cumulative

And there is the NYSE's cumulative advance-decline line portraying the happy masses who by ETF are spreading the bid and facilitating a greater distribution...


$NYA

Talk about on your back. The above two pictures, taken together, present a case for claiming a distribution has been effected since March '09 bottom. This view is further supported by far different — and quite revealing — conditions on NASDAQ. More on this in a moment.

About that 50-day moving average above a rising 200-day moving average... What similar behavior to 2007's roll-over might be in store? The rule of alternation implores the Elliott Wave analyst to expect something different. Good council here, too, because the 200-day is less positively positioned today versus '07.

Back in late '08 I pointed to the likelihood that, post-Lehman bankruptcy week (September 15, 2008) might present a point of resistance across the broad market. Well, will you look at that.


$NYAD cumulative

In the past I have suggested NASDAQ's cumulative advance-decline line confirms the fact that, in the land where animal spirits roam most issues are consumed in a death spiral. Recent weakness suggests this fact remains intact.

Quite simply, bull markets are sustained by growing animal spirits, not shrinking. Thus, the above presentation of NASDAQ's underlying condition seen in conjunction with the same on the NYSE continues suggesting the death knell of equity, in general, still resounds.


$COMPQ

Quite evidently, the greater preponderance of underwater, NASDAQ-listed issues are being held in hope of a turnaround, I suspect, while a relative handful of popular issues lift this broad measure disproportionately higher.

So, not only are animal spirits absent, a greater majority of sinking prospects are being held in hope their fortunes will turn for the better.

This is nothing less than a recipe for a Great Disappointment.




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...

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Thursday, February 18, 2010

Bend Over, Bull...


Woefully outmatched by the capital-starved monster it created, the bankrupt Federal Reserve's after-hours move to raise its discount rate could only capture the attention of that swollen number of saps who believe a positive fundamental basis for owning the riskiest financial assets of all is floods of liquidity transferring to the lender of last resort leverage over a collapsing physical asset base.

What, then, should one make of a thoroughly discredited enterprise (the U.S. Federal Reserve) acting in an entirely insolvent environment (the global financial system) amidst an audience who is terribly slow to catch on to reality that, there is no possible way to indefinitely sustain profound imbalances built up over the past several decades?

This, my friend, is the stuff historians will cite in commentary on the madness of crowds. It is the very prerequisite condition making collapse in the value of risk assets a virtual certainty.

Surely, even today, there's continued confirmation that, madness rules the moment...


$SPX

Judging by persistently diminishing volume of shares traded during this week's strictly technical lift higher, there are no shortage of believers in a status quo that is as dead as Elvis. Such are the likes who hold to current long positions rather than increasingly offer them up for sale. Having been given many months in which to reduce their exposure, the vast majority instead insists the worst is over, even attributing the Fed raising its discount rate as testimony to this.

Yet the fact of the matter remains strong hands have been distributing shares, not accumulating. This fundamental reality is objectively proven once again this week, much as it has been over the past year and the past decade. Were stocks, indeed, attractive, they would be bid up on increasing volume of shares exchanged. This goes as much for the broad market as it does financials (no matter the fact billionaire hedge fund managers are buying, and thereby demonstrating that, Peloton Partners truly was no anomaly).

Likewise, from an Elliott Wave analyst's perspective the position in which the market presently finds itself is objectively judged precarious...


NYSE McClellan

Here we see Elliott Wave behavior typical of a second wave down, where in technical conditions rival those at top, before the first wave down unfolded. This is revealed by the NYSE McClellan Oscillator.

Yet, too, does the NYSE's McClellan Summation Index present a foreboding configuration just prior to a third wave down unfolding.


NASDAQ McClellan

And there is your so-called "leadership." First, by NASDAQ's McClellan Oscillator the presence of faith-filled idiots is duly represented. This conclusion is no stretch of the imagination, either, given how NASDAQ's McClellan Summation Index reveals technical conditions supporting NASDAQ at present levels are decidedly negative, and this after having been weakening for months on end.

Indeed, were there a picture worthy of sending to bullish analysts with the caption "bend over," this one is it.


SPX 5-min

In the [unlabeled] five waves forming wave iii of c of 2 we see more typical RSI accompaniment (as opposed to the possibility mentioned yesterday). Awaiting, then, is such relative strength weakness during formation of wave iv as exceeds that registered during formation of wave ii. Subsequent to this expect one final lift higher ... then kaboom.

Oh, those crafty, strong-hand shorts do skillfully work their deception keeping prices afloat in an effort to bring idiot pigs to joyfully squeal in resounding chorus while the King of Swine (trademark pending) is prepared for slaughter...


company chart: GS

And so, now, you may answer in the affirmative when asked: Have you seen the little piggies crawling in the dirt?


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...

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Wednesday, February 17, 2010

Run on Equity Approaching


Although not necessarily likely, it is nevertheless entirely possible the counter-trend rally marking the second of five waves down from mid-January top ended this morning...


SPX 5-min

Relative strength coinciding with the S&P 500's advance since last Friday might not be "typical," but it sure is fitting an Elliott third wave (in this case wave c of an a-b-c corrective wave from bottom on Friday, February 5, 2010).

Normally one sees RSI weaken during formation of a discrete, 5-wave advance (in this case the five waves of wave c starting last Friday), specifically during the fourth and fifth waves. In this instance, however, RSI is seen strengthening every step of the way higher, particularly starting with yesterday afternoon's narrow, sideways trade (wave iv of c of 2?), and coming to a crescendo at this morning's peak.

Bear in mind this present view might prove incorrect. It is quite possible that, wave c of 2 is yet completed.


$SPX

Fairly well-exposed these past few months is just how few hands are driving the stock market. Volume during advancing periods has been less than stellar (and growing less so by the day).

The vast majority apparently continue to hold and pray ... blithely ignoring building systemic stresses that, much more likely than not are set to precipitate a run on equity the likes of which no one living has ever seen. With entire nations, currency zones and debt markets set to collapse, the frightful bankruptcy of a global arrangement whose greater components remain leveraged to the teeth — exposing the fraud of statically viewing balance sheets as though, like yesterday, assets can continue being expanded infinitely — likely will come crashing down on the world harder and faster than most everyone dares imagine.

Very few people in the year 2000 were calling NASDAQ a "bubble." Even fewer foresaw NASDAQ's 60% haircut by the summer of 2001. Most everyone was blinded by greed, apparently believing unprecedented performance during the late-90s would infinitely repeat.

The same blindness and greed very much remain a driving force today. Yet the fundamental situation is far worse now because, unlike ten years ago, the lender of last resort is "all in" ... drowning ... under attack ... and weakened.


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...

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Tuesday, February 16, 2010

Coercing Confidence


As if fearless complacency had not been amply demonstrated for months on end, yet another dose of the very same sentiment toward the riskiest financial assets of all was delivered today...


SPX 5-min

Today's tight, sideways trade following this morning's lift reveals a predominant presence of hope so driven by greed the holders simply cannot fathom the looming threat to their position.

They see yet another U.S. Senator's resignation confirming the likelihood further political gridlock will subdue any effort to tighten regulation of an out-of-control financial sector. Yet no thought is given to the fact that, the party whose past support of bailout is the one whose representatives are dropping like flies. Likewise escaping perception is the fact that, any candidate for political office whose campaign platform seeks aggressive prosecution of financial crimes committed over the past decade could win election in a landslide.

Odds are, too, the call for criminal prosecution will grow deafening, as political ambition makes desire for truth and justice a new-found bedfellow. Watch.

And while we are on the subject of financial crimes ... a word is in order about today's report revealing some well-known hedge fund and private equity players are adding to their positions in hopelessly bankrupt financial institutions like BAC, C, WFC, among others.

This news, of course, can only serve to further feed hope driven by greed. Yet do not its hearers likely ignore the possibility that, buying of equity in zombie financial institutions might be the consequence of a coercion whose threat is criminal prosecution?

The case of Toyota Motors probably holds something of a key in right perception about what really is going on...




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!

Friday, February 12, 2010

The Most Foreboding Top Since Y2k


Since simple moving averages (200-day, 50-day) on major stock indexes remain positively configured (50-day above a rising 200-day), one might wonder whether a further lift higher might still develop.

In so doing, however, realize: inasmuch as one might reasonably suppose adequate correction has completed ... with behavior of coincident technical measures — increasingly weakening, yet still more or less holding together — likewise making some case for another turn higher ... evidence suggesting top already is in provides enough compelling reason to fear a terribly steep drop might be nearer than most presently imagine.

First the big picture, courtesy the former "stock market for the next hundred years."


NASDAQ weekly

Relative strength applied to the Elliott wave count is a study in complements ... solidifying the prospective five waves up and subsequent correction thus labeled.

Per what's coming ... that "terribly steep drop" mentioned above is seen but challenging March '09 lows. Contrarily, when it looks time for wave (c) to fall into the range of the fourth wave of one lesser degree (i.e. wave 4) expect language like, "breathtaking collapse."


$COMPQ

Once again, relative strength applied to the Elliott wave count from March '09 bottom is a study in complements solidifying the prospective five waves up you see labeled above. In the spirit of "like from like" relative strength is equaled during two of the sub-waves [up] of each of the three impulse waves (i.e. waves 1, 3, and 5) of wave c of (b). Then, in the spirit of the "rule of alternation" those sub-waves that reached RSI equality differed in wave 3 versus waves 1 and 5.

And to reiterate a recent theme ... weakening relative strength (RSI) and momentum (MACD) — although holding together by way of remaining above levels registered at March '09 low — can be seen presenting a fine disguise masking trouble ahead. As I have said before, such has been the way of many a derivative technical measure since October 2007 top, just prior to a gassing.


$NYA

Something of a curious momentum and relative strength similarity, now versus last year's start. One big difference, though, is the fact that, last year, these measures were in the midst of positively diverging in formation of a bottom, whereas this year they are negatively diverging and signaling a top. The "rule of alternation" strikes again it seems. The present moment's risk is substantially increased.

Still, given this week's failure to extend last week's letdown, less likely appears the possibility a third wave of five waves down from mid-January top has begun. (These anticipated five waves down risk rapidly putting in the cross hairs March '09 lows, although not likely are they to exceed them.)

So, a first wave down rather is seen ending last week, and now a second wave up is forming, correcting the decline from top. Given this, what is reasonably made of third-wave -like characteristics demonstrated during last week's slide, then?

Well, the case supposing top is in and a significant decline has begun (a.k.a. "terribly steep drop") — albeit with but the first wave of five larger waves down completed — finds alarming substantiation, because last week's final move in the first wave lower suggests more weakness yet to come. Likewise, this prospect continues finding technical evidence in abundant, compelling agreement.

So, seeing last week completing a first wave down, and this week correcting it, the view straight ahead clears...


NYSE 5-min

Last week's best levels still remain a reasonable objective, as was first mentioned here about this time last week.

Now, we are going into a four-day week, and I recall the last four-day week a couple weeks back likewise had a promising start and then ended badly. So, in the spirit of alternation the coming four-day week might not end badly, then. Eventually, though, last Friday's low (ending the first wave down) will be broken, if in fact top is in.


NASDAQ 5-min

NASDAQ, the bigger bouncer upper, leading the way higher here after technically lagging for months on end, is complacency's red flag.

Money behind such bullish views as those held by the usual Fast Money suspects is thought a determining factor. The logic is like thin ice, though. It does not hold much weight. Listen for yourself...


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...

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Thursday, February 11, 2010

Setting Up Disappointment


Word on the Street has it the next couple weeks could be a period in which downside pressure is forestalled. In fact, consensus suddenly is calling for clear sailing! This after January's negative technical performance, followed by further weakness during February's first week? Well, call me dubious.

Spoken or not, this momentary change in sentiment certainly was anticipated. Yet whether it might be fortified over the next week remains in doubt.

To wit, the sort of technical reset one might expect following the past month's weakness was greatly served today ... and on volume that was the same shade of, shall we say, restrained, much as has been the case on advancing days all year.

So, with technical balance among interests now reasonably restored on a day the lottery's most vexing competitor — NASDAQ — led the way higher (because, lord knows, now that 95,000 new jobs per month are assured by the current standard-bearer of failed presidential leadership, there will be all kinds of added income to throw at every new electronic distraction under the sun), conditions, technically speaking, suddenly are ripe for a fine harvest of disappointment.

Indeed, if this week should finish on its lows, well, I for one will not be the least bit surprised. Not given the way the year has progressed thus far, and likewise, not given the present, negative outlook.


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!

Wednesday, February 10, 2010

Critiquing Investment Advisor Sentiment in a Bear Market


There is no shortage of analysis framed in a bullish mindset. You see this, for example, in discussions of sentiment. Much more often than not the viewpoint given takes perspective in a bull market's frame of reference.

The flaw in such analysis, of course, is in the assumption yesterday's troubles could not possibly multiply. Little, if any, thought is given to dynamics one might reasonably expect in a bear market...


Investors Intelligence

From an Elliott Wave guy's perspective the fact that, the ratio of bullish-to-bearish investment advisors recently reached a high exceeding best levels back in 2007 when major indexes traded substantially higher is both significant and extraordinarily bearish.

Per sentiment's present pullback ... well, on one hand recovery seems a reasonable expectation here. Yet on the other hand look where the bull-bear ratio stood in May 2008 ... and then again in August 2008. Not exactly a case of making lemonade when sentiment was turning up lemons.

Bottom line: this most certainly is not 2007. Thus, although sentiment's recovery along with the market might appear a reasonable expectation, a sudden return to the basement on both accounts is by no means out of the question.


SPX 5-min

Judging by price action in the industry benchmark S&P 500 following last week's throttling, recovery does not appear imminent. Rather a mere consolidation of last week's losses appears to be occurring. This suggests selling thus far endured since mid-January top has yet been exhausted.

Certainly an a-b-c zig-zag up from last Friday's bottom unfolded to end at yesterday's peak. Yet further corrective action appears to be developing since. Thus, correction of last week's losses resulting in a relatively narrow, sideways trade could extend into next week.

Given how wave 2 formed an "irregular flat," wherein wave b of 2 fell below the end of wave 1, one might rather expect wave ii of 3 to alternate from this. As such, then, bottom to wave i of 3 should hold during formation of wave ii of 3.

Consider this a gift. Why? Because when last Friday's bottom to wave i of 3 is exceeded, there's a good chance wave iii of 3 will have begun. Opportunity to score some fat 500-1000% or more gain on a stock index option put position likely will rapidly commence.


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.


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