On a Trade Challenging Patience ~ The Risk Averse Alert

Friday, May 13, 2011

On a Trade Challenging Patience

As you know, the bear case I have made largely is founded on the absence of animal spirits. This condition has persisted over the entire course of the market's counter-trend rally since March '09 bottom. It foremost has helped focus upon finite Elliott Wave possibilities projecting the manner in which the corrective wave forming off that bottom might develop.

Yet though finite in number, their prospective forms still were several. This reality has met a bear trade whose challenge over the past year puts to the test my manta claiming, "patience pays."


The green line in '09 marks the period during which my risk capital (non-retirement) was allocated into ProShares Ultra Short (2x) positions tracking major U.S. indexes. This ETF position originally was established on account of a reasonable expectation that, the market's counter-trend rally off March '09 bottom might unfold in a manner substantively different than occurred from March - May 2008. My thinking was that March '09 bottom might be more greatly challenged as the corrective wave unfolding developed.

Well, to put it bluntly this was not to be. Yet even going into April 2010 top — a good six months following my final allocation of risk capital into ProShares Ultra Short ETFs — solid technical evidence substantiating the Elliott wave count I thought most reasonable was sustaining cause for maintaining a patient disposition. No doubt, this stance was all the more bolstered by apt, underlying technical weakness, and this despite previous disappointment delivered in the face of similar indications of increasing underlying weakness.

In the aftermath of last year's "flash crash" my position came back to a point where breakeven was within striking distance. Contrasting the market's technical state as a result of the sharp turn lower a year ago (a year already!) with the same in July '08, there seemed a reasonable basis for expecting my trade's imminent vindication. Then came more hyperinflationary happiness from the trans-Atlantic loony bins propping up our insolvent financial system. Yet again, my trade paid the price ... but only in time it will require to become profitable, as animal spirits remain entirely subdued, thus confirming my bearish outlook.

Some trades quickly materialize, others take longer than anticipated. I am not about to gnash my teeth over the slice of humble pie I have been made to eat over the past year in particular. Although a triple-digit percentage gain was not my assumed objective when my ProShares Ultra Short ETF trade was initiated, now that the corrective wave off March '09 bottom appears near its end, the double-digit percentage loss that today I must patiently endure really is no burden on account of prospect that, a favorable reversal of fortune very well could be at hand. The market's resiliency notwithstanding, only the more likely has become its sudden unraveling. Thus do I soldier on believing patience will pay...

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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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