Monday, January 31, 2011

The Foul Smell of Complacency


The measure of misplaced optimism — complacency — one typically finds prior to a devastating stock market collapse continues to be vividly evidenced by the NYSE Bullish Percent Index...


$BPNYA

Relative to May 2008 (when the NYSE Composite Index traded at 9500) a larger portion of NYSE-listed issues presently support the NYSE Composite's levitation at levels considerably lower (approximately in the range of 7000-8000 over the past year).

More critically, though, back in May 2008 there was at least some measure of skepticism at the conclusion of the market's rally following its initial decline from October 2007 peak. Now, however, skepticism has evaporated. This despite the market's brutal decline preceding this rally, whose bottom was reached in March 2009.

So, there you have it. Plain as day. The place just reeks of complacency. Given no shortage of systemic threats, this bullish disconnect rather substantiates probability that, the market, indeed, is on the verge of a collapse that, stands to catch the vast majority off guard ... as always.


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!

Saturday, January 29, 2011

Solvency Risk Questioned is Investment Risk Answered


Here we are in the first month of the year 2011 and before our eyes in the mainstream financial media (CNBC) are stories asking "Could the Federal Reserve Become Insolvent?"

Forget about such sophistry as concludes, "Almost by definition, the answer is no." Rather consider that, something serious — something essential — is in question and apparently needs addressing. Otherwise, why would a story like this appear in the mainstream at all?

Those who accuse the financial press of promoting a self-serving bias should take notice. A red flag is being raised. Fair warning is given at a time when solvency, indeed, is a fair question...


U.S. Government Securities at All Commercial Banks

A mountain of debt has been grown over the past thirty years. (What you see above is only a fraction of it, but you get the picture. Debt's increase has been parabolic.)

Now, ask yourself. Have increased efficiencies been built into the physical economy (using this debt to finance the added capacity) assuring easy — relatively worry-free — repayment of this massively increased debt, as this surely will come due?

Were this the case, then there is no worry. In our midst would be capacity to easily sustain this increased debt taken on over the past thirty years and, indeed, increase it further!

Yet, instead, we find in the mainstream this need to address the Federal Reserve's solvency. At the same time is a growing push to cut government budgets — local, state, and federal — solely venturing to prop up the Fed's backstop (namely, the U.S. Treasury) whose size right now has ballooned into the tens of trillions of dollars (on- and off-balance-sheet) committed to a banking and financial system whose very solvency requires increasing support.

No wonder, then, we see concern for risk to the Fed's balance sheet were interest rates to rise. Let's consider this risk...


$TNX

No worry, a new arrangement has the U.S. Treasury fronting for any losses the Fed suffers.

Yet no matter how you feel about this "accounting tweak" — whatever perspective feeds your sense about "the full faith and credit of the U.S. Treasury" — when extraordinary steps such as these are required, prudence advises an investor exercise extreme caution.

Again, bottom line is whether the physical economy possesses capacity to grow at a pace making the servicing of financing facilitating this growth seamless and mutually beneficial. Despite the U.S. Treasury entering into the fray and directly backstopping the banking system with its prop of the Federal Reserve, wealth generated by increasing economic productivity still must be forthcoming if Treasury's backstop is to succeed. Otherwise, it only is a matter of time before the U.S. Treasury's solvency is called into question, as well.


NYSE weekly

They say stocks historically offer superior returns because there somehow are greater risks associated with owning stocks. This is on account of their being at the bottom rung of the capital structure providing finance to the economy.

Yet if you ever wondered what circumstance might be present when risk owning common stocks is elevated, there is every reason to believe you are looking at it right now. With questions being raised in the mainstream about the solvency of lenders-of-last-resort — these exist at the top rung of the capital structure — and this at a time when a consensus of interests rather deny any risk, prudence advises such skepticism toward stocks as shuns their ownership until today's often irrational denial of solvency risk inevitably becomes tomorrow's equally irrational fear for a threat that, by then, will have passed.

Conditions today simply reveal how the spirit of greed stands ever-ready to be washed away with blood in the streets. What might come of this bath — what had better develop that the solvency of lenders of last resort might be secured and again go unquestioned — is for another day.

* * * * *

© 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, January 28, 2011

This Day in History: The Tomb of QE Discovered


We take you to "Redbud" ... the par 3 16th here at Augusta:

2011 Master's Tournament Cinderella story, TC Waveman, has sized up the 170 yards to the pin and is ready for his tee shot. (Camera cuts to view the entire hole...)


$NYAD(Published Tuesday, 1/25/2011)

[Quiet please]

Swish! Now, there's a shot that should hold up nicely with the weak wind we have today. (Camera follows ball in the air, then cuts to the green, where the crowd raises a cheer as the ball hits its mark and begins rolling toward the pin...)

[Someone shouts "Get in the hole!"]


$NYAD

ROAR!

It's in the hole! It's in the hole! A hole-in-one here at the 16th at Augusta! Oh my. It's game on for TC Waveman, hitting his rising wedge straight into the cup of wave b of 5.

This is to say that, "Deterioration Measuring a Countdown to Doom" was aiming exactly at the mark reached today. So, the countdown continues.

Technically, today's deterioration should be the worst of it, as further levitation is likely to develop while a "rising wedge" off late-June 2010 bottom moves toward its completion. Only some small number of days likely remain, though, before doom descends on the market. Over the interim noise coming from growing cracks in the floor might momentarily subside, only to suddenly become deafening.

What I can't figure out is, if over many decades you had built up a massive debt bubble atop an energy complex into which your tentacles were sunk deep, then why would you risk destabilizing the Middle East?

I'm being facetious. Yet supposing that, not soon forthcoming will be leadership proposing some massive development project in the region jointly financed via credit mutually uttered by sovereign national banks, the question's answer becomes daunting, seeing the Middle East prospectively a detonator exploding fragile support presently sustaining a trans-Atlantic financial system whose insolvency has only grown more apparent over these many months that, the stock market's levitation has been maintained.

Decades of disinvestment in physical economy could be meeting a vulnerability whose exposure, indeed, threatens to bring the world to its knees. Yet might not such "sacrifice" as alone has any prayer of extending the present, bankrupt arrangement be meeting one way in which it might be massively imposed (with gasoline @ $10, $25, $100 per gallon) ... as, indeed, is abundantly and urgently necessary now that central banks can no longer hyperinflate without precipitating massive, spontaneous, social upheaval?

How ironic that, the tomb of QE should be discovered in Egypt...


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!

Thursday, January 27, 2011

Submerging Markets and Other Foreseeable Disasters


"The protests effected the country's markets as Egypt's benchmark index recorded its biggest drop in over two years Thursday, plummeting more than 10 percent as anti-government protests rattled investor confidence."
—"Egyptian Stocks Tumble; Protests Turn Violent" (CNBC, 1/27/2011)

Do you suppose the type of investor whose confidence was rattled runs among "hot money" game masters whose playing board is being sacrificed by hyperinflation the Fed and U.S. Treasury have been relentlessly exporting in a bid to buy time, that the securitization Ponzi scheme might somehow be contained?

With the Financial Crisis Inquiry Commission concluding that, the crisis of 2008 was foreseeable, let's save some future Global Crisis Inquiry Commission the trouble of determining whether budding instability in so-called "emerging markets" likewise was the same. Nothing lasting and good stands to be gained when money — liquidity — creates conditions turning men into slaves — an "imbalance" of sorts seemingly well-summarizing the spirit of protests spreading throughout North Africa.

One question is to what degree is this hyperinflation-induced transformation of emerging markets into "submerging markets" an intentional act provoking a war whose unleashing ventures some larger, ill-spirited cause for which the sacrifice of great sums of wealth, and even great nations, is a necessary consequence?

Another question is how might any groundswell of protest in these United States toward policies likewise making men servile to what surely must be one of the most corrupt money schemes in history be stunted? Once again some extraordinary, provocative act of war might be in order.

"The market had tumbled 6.25 percent just 15 minutes into the session before trading was temporarily suspended. But the pause seemed to cement investor fears, and the drop continuing with the market's resumption."

This is exactly the sort of trading one could reasonably expect here in the U.S. ... even within a mere matter of days. Indeed, some fat, double-digit hit crushing the market over several consecutive sessions — total chaos — is by no means out of the question.

Let me assure you, I am not alone in sniffing out this fear...


$CPC

Mr. Market also appears alert to some prospective, upcoming distress.

So, let's see what further indication of fading confidence might develop over the final two trading sessions of January 2011. There remains every reason to continue anticipating that measure of technical weakness discussed on Tuesday, as the fifth and final wave forming a "rising wedge" off late-June 2010 bottom nears completion.


$NYA

I published a chart a few weeks ago contrasting the 10-day and 200-day moving averages of the daily NYSE Advance-Decline differential over the past three years. A closer look at the same chart offers assurance that, underlying technical weakness continues building in a manner fitting an advance nearing its completion...


$NYAD

Not a pretty picture.

What's more is evidence that, weakening upside participation of NYSE-listed issues coinciding in particular with the market's relentless levitation since mid-September 2010 raises the prospect of an upcoming throttling, and this even if stocks should begin falling simply of their own weight (as appears an increasing risk, judging by the persistent contraction of net advancing interest over the past several months).

Given weak underpinnings to the market's advance such as are revealed above, any strong move for the exits could rapidly precipitate an avalanche of selling whose run on the bank might surpass 2008, and likewise travel deeper into the vault than most presently imagine.


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, January 26, 2011

The Ice in Davos


You can almost feel the strain of that concentrated interest of terribly weak hands whose one trick pony does its best "little engine that could" imitation while passengers and onlookers alike regale each other with fantasies of invincibility, such as those who rode Titanic similarly enjoyed right up to its end.

Sure, the boilers still billow smoke and the lights remain on, but in Davos they're kicking around chunks of ice. No doubt, both Trichet and Soros today expressed their minds' delusion in a manner fitting this gravely damaged ship most still believe is the unsinkable trans-Atlantic financial system.


NYSE 5-min

If my eyes serve me well, it appears the lot of weaklings desperately dribbling their equity exposure to an even weaker crowd are running out of paint allowing their further continuance. So, the negative day that, yesterday was thought possible today finds technical grounds for more likely developing tomorrow.


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!

Tuesday, January 25, 2011

Deterioration Measuring a Countdown to Doom


The market's persistent levitation inspires two noteworthy observations...
  1. Bullish observers whose posture appears defended by this levitation more frequently promote rationalizations that, on most every count are all too easily refuted:



    Tell the "pebble in an ocean — Fed QE impact" argument to its multiplier effect on central banks across the globe whose impact is being revealed by an accelerating squeeze on margins everywhere.

  2. The probability that, a "rising wedge" is forming off late-June 2010 bottom appears to be increasing with persistence of the market's levitation.

    No doubt, this persistence, itself, fairly is the sole quality representative of underlying character typical of an Elliott "c" wave (which this "rising wedge" is seen forming, completing an a-b-c corrective wave off March '09 bottom). Otherwise, the market's technical backdrop fairly lacks such evidence of improving strength amidst persistent fear as typically sustains an advance. Likewise, the manner in which listed-issues are participating while this "rising wedge" takes form is raising the probability that this particular Elliott wave, indeed, has been unfolding and is nearing its end:

$NYAD

It is the trend of the deterioration of participation during formation of corrective waves within this "rising wedge" that is of interest tonight. The wave count assigned to this presumed "rising wedge" is substantiated by this.

Already documented is technical deterioration (how ever modest) during formation of wave 4 relative to wave 2. This is typical technical behavior coinciding with a five-wave advance.

Note, too, though, how deterioration of participation during formation of the corrective, connecting waves within waves 1 and 3 has been evidenced in a manner likewise revealing growing, underlying weakness.

In light of this we probably can expect the corrective, connecting wave within wave 5 to continue this trend. Thus, the market's final act of levitation might first await a negative day resulting in an NYSE advance-decline differential falling within the range of the two red lines drawn above. That day could arrive as soon as tomorrow.


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!

Monday, January 24, 2011

Moscow Bombing: An Act of Terror or War?


Well (as Ronald Reagan once began)...

Could it be that, an element in Russia is joining an element in Ireland in sharing deep resentment toward a constellation that aims to relegate each sovereign (as well as others) prostrate to their [hopelessly bankrupt] multi-national, public-private partnership? This was a wonder after reading, "Bombing at Moscow Airport Called Terrorist Attack."

Curiously enough...
"Medvedev canceled plans to travel Tuesday to the World Economic Forum in Davos, Switzerland, where he aimed to promote Russia as a profitable investment haven to world business leaders."

Davos: where public-private partnerships put on a smiling face.

Another interesting fact about today's attack...
"Domodedovo was briefly closed to air traffic immediately after the blast, but soon reopened."

Apparently there was no need to worry about co-conspirators (nor even presenting appearances of such concern).
"At least 35 people were killed, including two British travelers."

One wonders who these two Brits were. Friends of a friend of Medvedev?

If "terror" over Russians was the objective, then why was the international arrivals terminal targeted? (The article's title, itself, is rather curiously worded.)

Could it be that, with the "B" in BRIC badly faltering, the "R" finds nothing to gain (and everything to lose) in the growing void between "investor" demands and its sovereign interests?




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, January 21, 2011

Discord 101


Surely, in the grand scheme of things, as ever, the financial world has its game masters and its players. When harmony prevails both groups can prosper. Yet when discord arises both will falter.

That the latter state best characterizes the present condition of the trans-Atlantic financial system is a conclusion whose evidence is bolstered by events this week in Europe...




At first glance the collapse of European sovereign debt yields might appear that, someone is blinking. Yet, if what Simon says has any truth — that Europe's sovereign debt woes soon will be resolved — then the trade in Europe this week entirely could be a matter of game masters simply positioning themselves in advance of this "resolution," while in the process shaking out weak-handed players whose wherewithal will be needed when it comes time for those running the game to pare their short exposure.

Surely, the need for bailing out a European banking system choking on worthless securities has not diminished on account of German resistance. By no means! The crush for capital remains.

So, what's a game master to do? Ah yes, squeeze the players. Discord 101.

None of the capital raised in such an attack could buy much time, though ... and quite clearly those running the game know this. That's probably why Ireland did not join this week's Euro-sigh-of-relief. Being just weeks away (if not days) from a new government whose bailout unfriendliness stands to make even Germans blush, there's no point pretending "resolution" of European debt woes portends anything but sovereign-crushing chaos. Indeed, Ireland must remain the poster child backing the EU agenda for "resolving" Europe's financial troubles if Asia is to be suckered into supporting sovereigns on the European continent.

So, the viability of the supra-national EU evidently hinges on Ireland ... and this at a time when repudiation of that nation's recent agreement with the IMF and ECB threatens to become the clarion call of political leadership vying to take power in coming Irish elections. Of course, in the process unwanted attention necessarily will be drawn to the fact that, it's the banking system, not sovereigns, at the epicenter of the trans-Atlantic financial system's insolvency. That's a problem for another day, however.

Now, in addition to this week feigning "attractiveness" of über-leveraged [sovereign] "assets" on the European continent game masters also put to work the tried-and-true, "CME-juiced short-squeeze cocktail" today on the back of an over-leveraged GE...


company chart (GE)

Take GE's Elliott wave count over the past two years for what it's worth. Whether today's gap higher merely was "throw over" in formation of a rising wedge's fifth wave (completing wave c of an a-b-c corrective wave up from March '09) should be a question resolved in a matter of a few days. The more critical matter right now is whether GE grew any coattails on account of its sudden surge of attractiveness...


$NYHL

Nyet. Again, we have nothing but evidence of discord rather than any sign of growing unity among a broad spectrum of listed-issues.

Something of discord, too, is revealed via the Facebook vs. Google think making its way into the mainstream recently. Come on, Facebook? It's the new MySpace waiting to fade the minute its low barrier to entry is hurdled.

And when was the last time you saw a commercial for Google search ... in comparison to Bing's dozens? You know why that is? Because there's no competition.

Per the comparison of site visits, Facebook vs. Google — wherein Facebook recently has surpassed Google — does this include visits to the hundreds of thousands of sites that feature "Ads by Google?" Probably not. What about YouTube? And the elegant Droid?

The [self-serving] claim that, Facebook is worth $50 billion reeks of Y2k's "New Era!" Could this be a [capital-starved] firm working a still hungry crowd that is no better guided now than was the case eleven years ago? Gasp! Probably.




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!

Thursday, January 20, 2011

Smoking Herb


Put this in your pipe and smoke it...





What's that Herb? A momentum-driven market? Lack of conviction? Wha, wha, wha, weak hands?

Conditions conducive to collapse, indeed.


$CPC

Yet with a move over the past two days seeing increasing hedging of long equity exposure via put options, a broad-based collapse likely will be delayed. This sets up for yet another round of premium scalping selling covered calls, as well as creating conditions wherein last week's call option buyers might exercise and relieve the writers of those contracts of equity whose desired offloading at this pace might require another century.

Pity time is running short for those weak hands whose credit market exposure is likely to make necessary in the not-too-distant future the wholesale dumping of equity positions for the sake of desperately needed capital that, no AIG bake sale, nor Facebook private placement can generate.


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, January 19, 2011

One Trick Pony Two Turns From Home


Checking on the possibility that, a "rising wedge" — a "special" Elliott Wave form appearing exclusively at the conclusion of either "impulse" or "corrective" waves — is unfolding to form wave c of an a-b-c Elliott corrective wave up from March '09 bottom...


$NYA

Ah yes, the old "levitate the market on flat-lining, momentum trick" — made possible with such increased selling restraint as only has served to buy time ... and more or less the standard follow-on to the "CME-juiced short-squeeze cocktail" whose use has been a tried-and-true means for initiating rallies since March '09 bottom.

The present levitation appears to be extending formation of the initial wave (of three) of the rising wedge's fifth and final wave. No surprise seeing this dynamic yet again coming into play here. This same manner of time-buying levitation has been standard fare over the past two years.

Indeed, it remains possible that, today's setback might not yet begin the fifth wave's corrective, connecting wave. The fifth wave's initial wave (unfolding since early-December) still could have more life ahead (probably lasting a mere day or three longer) ... with limited upside, of course (as ever).

Recall the projection put forward a few weeks ago in discussing this "rising wedge," suggesting that, its fifth wave's connecting wave might maintain an upward bias, while momentum simultaneously fades more decidedly than occurred during formation of wave 3's connecting wave (over the latter half of October). This possibility remains living.

So, with only eight trading days until the end of January wonder turns to whether transition beginning formation of the fifth wave's connecting wave might lead the NYSE Composite to finish negative on the month. Such a modest indication that, 2011 might not be the barn burner most expect would be a fitting development, both in relation to the present, late stage formation of a prospective "rising wedge" off late-June 2010 bottom, as well as to what disaster could very well unfold immediately following this rising wedge's completion — indeed, sometime this year.


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!

Tuesday, January 18, 2011

Distinguishing Complacency From Animal Spirits


Commentators claiming the stock market is in the grips of "a speculation-driven frenzy" whose effect has been to "revive investor animal spirits" apparently overlook the far greater extent to which utter complacency is the driving force behind rising stock prices in the aggregate...


$COMPQ
$NAAD cumulative

It's the NASDAQ Death Spiral revisited: the technical measure of underlying participation that saw the NASDAQ Composite's March '09 low confirmed by NASDAQ's cumulative advance-decline line ... as well as finds the NASDAQ Composite's rally off its March '09 low badly diverging from the same.

Note how but a relative handful of listed issues did the heavy lifting on NASDAQ from March '09 - April '10 ... while fewer still propelled NASDAQ higher since late-June 2010.

If ever there were a means of quantifying the existence of "animal spirits," the cumulative, upside participation of NASDAQ-listed issues most ably qualifies as a suitable measure. When fundamental prospects for equities in general, indeed, are positive "a speculation-driven frenzy" will make itself apparent by way of expanding upside participation of NASDAQ-listed issues, and this in a manner confirming a rising NASDAQ Composite.

Nothing of the sort has been in evidence since March '09 bottom. Rather, the greater preponderance of NASDAQ-listed issues simply are not participating in NASDAQ's advance to any degree close to those relatively fewer issues leading the NASDAQ Composite higher.

Most NASDAQ-listed issues are languishing badly relative to where these traded three years ago, thus demonstrated that, no "speculation-driven frenzy" is behind NASDAQ's advance. Rather, complacency bolstering willingness to hold onto lagging dogs is the larger factor helping drive the NASDAQ Composite higher.

Yet this is not some new dynamic whose portent is unpredictable. In fact, similar circumstance existed in 2008 (first in May, then again in August) when in relation to its late-2007 peak the NASDAQ Composite was not trading much lower, yet its cumulative advance-decline line contrarily was in the midst of spiraling decidedly into the abyss.

Today, even more profound is the disparity between the NASDAQ Composite and its cumulative advance-decline line versus the position of both in late-2007. Thus is the way paved with objective evidence supporting an outlook (such as mine) anticipating a NASDAQ Composite trading in the vicinity of 300 sometime over months ahead...


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!

Monday, January 17, 2011

Extraordinary Popular Delusions & the Madness for a Dead Dog


Allow me to elaborate my sense of those bullish observers whom I recently have termed admirers of the tail of that mangy dog that is the grossly imbalanced, trans-Atlantic financial system. These are among the many monetarists who cling to a "recovery" theme by citing improvement in various measures of economic activity.

A critical dynamic threatening this group's common sense about the prospect for continued economic growth fails general recognition despite this dynamic's nature being laid bare for all to see during the financial crisis of 2008. Its overriding, negative portent, indeed, only has become more entrenched by way of the "bailout" regime.

For decades the U.S. physical economy has lacked capacity to generate such excess wealth as could support the mountain of debt built up over the interim since the Nixon administration trashed the post-WWII, Bretton Woods system of fixed exchange rates, and set the nation on course to becoming the world's most profligate consumer of foreign-produced goods ever. Yet were it not for the "securitization" regime fostered by Alan Greenspan, the size of that mountain of debt could not have reached the unprecedented heights it has, nor could the dismantling of the U.S. physical economy have gone to the depths it has. Make no mistake: the lure of profit (and power) from an inflating securitization regime effectively masked the physical economy's increasing, wealth-generating inadequacies.

Up until the 2006-2007 period (when the mountain of credit securities tied to "assets" of various sorts reached the peak of its growth) there existed power to effectively "paper over" all manner of securities that, increasingly faced impairment largely on account of such poor risk management as led to ever more concentrated, highly-correlated trades existing throughout a disproportionately burgeoning financial system (such as the likes of Alan Greenspan more or less institutionalized as a matter of standard practice during his tenure as Fed chairman). In the process a seemingly endless stream of liquidity proceeding from the "shadow banking system" fed price appreciation of physical and financial assets alike. Yet with the implosion of the sub-prime mortgage market power to infinitely inflate the supply of credit securities was crushed.

This power will not soon be restored. Vanquished is confidence in the securitization regime, as well as the viability of leverage added atop the physical economy.


Total Securitizations 2000-2010

So, badly exposed is the mountain of debt leveraging a physical economy that for decades has been incapable of producing excess wealth enough to maintain the currency of that debt. No longer, too, can this debt be easily papered over with new, liquidity-enhancing securities. Thus, failure — disappointment — throughout the capital structure will only intensify. This dynamic presently is being well-demonstrated by the spreading crisis in the euro-zone, as well as via the collapsing state of municipal finances here in the U.S.

The supposed economic improvement presently cited by many bullish observers is nothing more than a weakly wagging tail of a dog whose pulse is fainter than at any time over the past thirty years. Truth is the dog already is a goner.

Lacking capacity to resuscitate the shadow banking system's infinite multiplier — a feat not likely, given problems whose hurdling requires restoration of confidence in the many layers of that facilitating hierarchy whose every layer has been compromised — gobs of liquidity added by central banks and [increasingly gouged] taxpayers is making its way into the present, grossly imbalanced, economic and financial arrangement in a manner sure to kill the dog by broadening the shutdown of excess capacity presently existing on both physical and financial fronts. The further, chaotic shedding of this excess capacity is only a matter of time.

In other words, the response to the financial crisis of 2008 only has served to accelerate the trajectory toward the demise of the long-insolvent, trans-Atlantic economy.

Absent massive investment in transformative infrastructure projects aiming to increase the physical economy's efficiencies by orders of magnitude, debt built up over recent decades (and presently being increased via extraordinary measures attempting to salvage the unsalvageable) assuredly will become increasingly burdensome and further challenge the viability of all things built up in the era of "globalization," as well as over the entire post-WWII period.

Those who claim the threat of systemic collapse passed with the regulatory response to the financial crisis of 2008 are blowing smoke, resting their judgment in fantasy that, a post-industrial, service-based economy is capable of assuredly producing a stable climate wherein easily elevated is risk-taking confidence conducive to generating such wealth as alone can easily keep the weightiest of financial claims solvent. Clearly, clearly, clearly, the regulatory lapse that allowed formation of such frightful economic and financial imbalances as continue existing to the present day will by no means facilitate confidence necessary to sustain this now-badly-compromised arrangement indefinitely.

Furthermore, mere containment of profound economic and financial imbalances simply is not within the realm of possibility. Ask any Greek, Irishman, or Californian, if you don't believe me.

Indeed, the threat of systemic collapse never has been greater. That a solid majority of vested interests appears not to consider this risk even remotely possible should come as no surprise to anyone studied in "Extraordinary Popular Delusions and the Madness of Crowds." Same $#!+, different day...

* * * * *

© 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!

Saturday, January 15, 2011

A Most Interesting Line on the NYSE


Whether five waves up from late-June 2010 bottom are forming a "special" Elliott impulse wave called a "diagonal triangle" (also called a "rising wedge") whose completion could be but days away...


$NYA

Or whether instead might be forming a more typical five wave advance whose "channel" at the moment can only be approximated — requiring further development of the fourth wave prior to the fifth wave completing — bringing the market to levitate some weeks longer...


$NYA

The market's relatively limited upside prospect in either case is substantiated via a long-term perspective involving a line around which has turned the NYSE Composite Index over the past three-plus decades. Arbitrary though this might seem, the manner in which this line intersects key points in a well-substantiated Elliott wave unfolding since 1974 raises sight toward how recent years' activity might be warning of trouble straight ahead...


NYSE weekly

This rising line (beginning in 1976) contains to its downside those several first waves unfolding as part of five waves up from 1974-2007. This line likewise contains to its upside those several fourth waves unfolding as part of the same five waves up from 1974-2007.

The line's upside penetration came in 1986 as a third wave of a third wave of a third wave higher unfolded. During that year, too, the number of NYSE-listed issues hitting new 52-week highs (this as a percentage of NYSE-listed issues) reached its high mark for the entire 1974-2007 period.

Curiously enough, this line's downside penetration came in 2008 as a third wave down unfolded. Making that year's negative turn in relation to this line all the more interesting is the fact that, the number of NYSE-listed issues hitting new 52-week lows set an all-time record during 2008's darkest days.

This line since has proven itself tried and true resistance, particularly over the past year. Abundant technical weakness currently in evidence suggests resistance will continue.

Although it is uncertain how much longer might persist the market's levitation, overhead resistance this line consistently has presented over the past year — and this in the midst of entirely negative [intermediate-term] technical conditions whose state only has weakened — is evidence enough to subdue the banter sure to accompany any further trade resiliency yet in store before unabated physical economic breakdown invariably precipitates what could be the most chaotic financial crisis in history sometime over the immediate months ahead.

* * * * *

© 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, January 14, 2011

Bearish Actions Speak Louder Than Bullish Words


That line of thinking suggesting 2011 will be a year of increased mergers and acquisitions has found its genius dot connector claiming that, at hand is a golden age of banking, because for the first time in history "banks will be bringing out new products which no one is going to like but which are going to be very profitable for the banking industry." Talk about fantasy. There isn't enough confidence in the universe.

Trouble is all that "cash" on bank balance sheets remains gravely at risk. No doubt, "the market" already rightly fears this...


$NYHL

Look at it this way. If banks and financials — both groups having long been laggards (now turned the market's leadership as of early December) — are looking at a future full of blue skies and sunny days, then where is the added excitement anticipating the positive impact a supposedly well-capitalized banking system would have on business generally? Where is such increasing accumulation as would register with a rising number of NYSE-listed issues reaching new 52-week highs?

Might all that cash on bank balance sheets in the end only facilitate the financial system's further, chaotic consolidation, as seems a likely possibility given the depth of profound, ever-increasing vulnerabilities its leading institutions commonly face?

Consider, then, further evidence revealing that, in the current iteration of the market's levitation there is yet again no sign suggesting stocks are being accumulated by strong hands...


$CPC

Rather than long equity positions prudently being hedged with put options (one of the habits of strong hands), we have fees being generated with call options sold to those who to some degree probably will gladly exercise and absorb some of the equity that, option writers acquired as recently as late-December, whose purchase principally is part of a technically driven venture seeded by gobs of [hyperinflation-feeding] liquidity seeking a momentarily sensible investment objective. Judging by today's relatively out-sized ability to feed call options to a well-cultivated, bullish captive interest, those weak hands whose technical machinations alone have sustained the market's levitation over the past year are tipping their hand and revealing a decided unwillingness, or, more likely, inability to sustain the market's present advance much further.

This dynamic more or less has characterized the market's entire lift off March '09 bottom. Its persistence all the more appears an ominous indication that, stocks are not being accumulated, particularly when seen in light of their ever-diminishing demand...


$NYA

Successive advancing periods since March '09 bottom continue being accompanied by a shrinking volume of shares exchanged. Yet the "wall of worry" the market is said to climb requires precisely the reverse condition. Worry breeds fear such as precipitates increased selling, which in a bull market will be met with willing buyers absorbing increased supply even at higher prices.

No wall of worry is being climbed off March '09 bottom. Thus, volume presents no evidence suggesting stocks are being accumulated by strong hands, then. Rather, the market increasingly appears protected by a blanket of complacency. Diminishing volume registering at ever higher price levels reveals this. Without a doubt, too, this condition only makes today's elevated bullish sentiment all the more conspicuously misplaced.


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!

Thursday, January 13, 2011

Se Habla Español


Running a close second to the many voices on CNBC over recent weeks claiming, "stocks are cheap" have been Spanish authorities from both the private and public sectors assuring investors that, whatever financial difficulties the nation's banks are facing in no way should be thought problematic.

Oh yeah? Tell it to Alan Schwartz. Better yet, make it Dick Fuld because money appears to be voting that, Spain is setting up for a Lehman Brothers rerun...


EWP (Spain iShares)

Make no mistake: the technical configuration highlighted above has a September 18-19, 2008 look of panic on the horizon, much as was seen in the U.S. following Lehman Brothers' September 15, 2008 bankruptcy. Apparently, there is similar conviction today (at least momentarily) in the likelihood that, a formidable backstop for Spain's banking system will materialize before the eurozone vaporizes.

Yet this far down the line in what increasingly is being acknowledged a solvency crisis, the odds of some "rescue" stabilizing the Euro seem a long shot at best. Resistance toward the need to throw good money after bad has solidified among the eurozone's key players, much as it had here in the U.S. during the March - September 2008 period following the Bear Stearns take down. So, looming chaos appears a probability whose likelihood might be presumed increasing judging by trading this week in Spain iShares.




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!