Broad Performance Disparities Spell Trouble Ahead ~ The Risk Averse Alert

Thursday, December 29, 2011

Broad Performance Disparities Spell Trouble Ahead

I owe you a few days. Charts (and video) are ready, but writing is delayed.

No change in the weather to report today. Rather, a negative turn of affairs instead should be feared likely to appear sooner than the average baboon apparently is wont to pontificate, as these in large number sell hope in fantasy of a pending return to days of old, blithely ignoring truth that, major currency unions do not collapse with great regularity and the EMU probably is doomed.

So, where does some of the money running from the European continent take refuge? In but the bluest of the blues trading in the U.S.

Forget for a moment the unique manner in which the Dow Jones Industrials Average is computed. More important is the simple fact that, it is weak hands who still refuse to sell even at this late hour — much as was exposed for many months prior to this year's top — "allowing" the market to remain buoyant. The trickle of new money coming in during advancing periods (see volume) for now is enough to bring victory to a tried and true CME goose whose number has grown into a flock. Weak hands holding (rather than selling into strength) no doubt continue proving invaluable, much as was true right up to August's kick in the can.

Now, new money coming into a healthy stock market (one likely to continue rising) should find participation broadening, with more speculative offerings generating the most excitement. This is not the case today. Safety and yield rather are preferred. That this does not qualify a broad swath of equities certainly speaks for the Dow's leadership. However the broader market's performance disparity rather reveals how fragile is this moment...


Of course, the next best thing to old big blue might be indexing, yet here a lagging interest, broadly speaking, begins to be seen.

Such a condition at this moment, given both recent developments, as well as over the past ten years or more, suggests stocks not only are vulnerable to falling of their own weight, much as occurred late-July, early-August, but are at greater risk of collapsing in the face of some exogenous event.

Again, over the long-term that matters to any living investor a broadening of interest in stock ownership effectively assures further share price increases. Without this, the entire asset class is subject to attack.

Just to drive home this moment's present vulnerability, consider the market's performance disparity revealed by respective composite indexes of all shares listed on the NYSE and NASDAQ...


NASDAQ's present weakness is more subtle (see 50-day moving averages and MACD), while its longer leadership (revealed more or less over this year's entire duration, let alone since March '09 bottom), relatively speaking, remains fitting a moment in which the nastiest of selling might soon commence.

Remember August '08? Where else would weak hands be venturing to separate themselves from the pack than on NASDAQ? Its subtle weakness here in the face of a supply-constrained market in which safety and yield are preferred is thought a red flag warning of broad weakness straight ahead.

Still, that said, formation of wave (2) of C since late-August might proceed for some weeks longer. More immediately, however, the path of least resistance looks lower.

Fast Money
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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.

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