Fraught With Risk ~ The Risk Averse Alert

Tuesday, June 21, 2011

Fraught With Risk

There's something going on raising concern that, the market might be on the verge of coming unglued...


The Volatility Index's behavior over the past week or so offers a starting point from which concern builds. At first blush the spike in the VIX taking it above its 200-day moving average might be thought reflective of the greater measure of fear typical at market bottoms. Yet the configuration of both the VIX's relative strength (top panel) and momentum (bottom panel) bears striking similarity to the period just prior to the market's mid-March swoon.

The one difference with the present moment versus early March finds the VIX already above its 200-day moving average, whereas prior to the market's mid-March sell-off the VIX held below its 200-day moving average. Seeing this at a time when major indexes remain in a technically vulnerable state raises concern but further...


Both the S&P 500's relative strength (top panel) and momentum (bottom panel) remain decidedly positioned on the sell-side of their respective ranges. Back in early-March both measures were more positively positioned on the buy-side of their respective ranges. Thus, does the present moment appear fraught with risk.

Of course, any imminent throttling of the market would force the conclusion that, wave (c) forming off late-June 2010 bottom already completed on May 1st. This possibility to date has not been considered. Yet the market's weak technical condition currently is threatening to increase this possibility's likelihood just the same.


June 14th's "Skyward: A Major Turning Point" noted how the NYSE Advance-Decline differential that day had registered its strongest reading since the end of wave 3 of (c) in early-November 2010. Increased buying interest this was assumed to reveal was thought indicating a floor being put under the market. However this conclusion rather was debunked the following day when the market sank to a new low for the month. Turns out the buying interest was but suckers anxious to be fleeced.

Who's to say today's assumed increase in buying interest won't prove the same?

George Papandreou? Why it rather appears another lap dog well-trained in the art of buying time has done well today...

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!