A Distribution Well Done ~ The Risk Averse Alert

Thursday, May 10, 2012

A Distribution Well Done

Applying a line of support/resistance to the NYSE Composite Index — this in a manner similar to the S&P 500 as presented yesterday, yet extending over the greater duration of the market's counter-trend rally off March '09 low — an ominous construct well-along in its development suddenly appears: a head and shoulders top, looking rather symmetrical at that, with an upward bias no doubt a product of increasing expectations for endless hyperinflationary happiness...

$NYA weekly

Well, lookie there. Upwardly biased expectations diverge from downwardly biased relative strength and momentum. A timely find as both measures begin crossing into the negative. Indeed, on both counts the neckline at 7000 could be dead ahead, and then some.

I remember when the head was forming, late-2010, early-2011, identifying volume-related circumstance suggesting the market's decade-and-running distribution was done. The evidence was compelling. All the more now with this head and shoulders suggesting distribution is really done. Volume during formation of the right shoulder being muted from that during formation of the head (as is prerequisite) all the more warns of a market dominated by weak hands. Given this well-known [distribution] pattern's stark evidence of vulnerability at a rather precarious moment on both fundamental and technical fronts, a whole lot of nasty certainly could be in store, and pronto at that.

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!