Heart Attack Ahead ~ The Risk Averse Alert

Wednesday, February 02, 2011

Heart Attack Ahead

Here comes top to the market's counter-trend rally off March '09 bottom...

NYSE 5-min

No, this is not the first top sighting in these parts over the past year-plus. No matter. Find one technical measure that has strengthened over the interim. There is none. A wealth of weakness coinciding with every past "top" has grown but wealthier.

And now, an Elliott wave perspective fitting this technical evidence — indeed, conclusively confirmed in a most remarkable way by it. Per this perspective, too, a moment of truth appears at hand.

For the record this is one of those fairly rare occasions offering low-risk opportunity trading stock index options (long puts for the moment). In fact the next two weeks going into February expiration (Feb. 18) could be big. A 25% heart attack is not out of the question.

One fatal confusion these days subscribes to belief that, because every serious, systemic vulnerability encountered with increasing regularity over the past year or so has been absorbed without consequence to the stock market, the worst of the crisis developing in 2007-2008 has passed. Yet, there exists no evidence backing this belief ... other than the persistence of the market's levitation. More likely true, then, is the prospect that, vulnerabilities will matter when there simply is no further capacity to pretend they don't.

What's more, the full measure of accumulated vulnerabilities reaching deeply into matters systemic might be regarded the most frightful collection of threats ever assembled whose consequence is well-known. In other words, all the technical evidence I have presented to justify my position strongly suggests game masters generally are keeping a sharp eye on the exits.

And when some interest or another rushes for the door?

Well, there's a good chance an avalanche will follow. Indeed, that's why the next couple weeks could see panic.

What could bring accumulated vulnerabilities suddenly to matter I do not know. Yet there is a well-developed technical case suggesting that, sooner than most everyone imagines, they will.

Fast Money
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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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