Weak Hands Work the Rumor Mill ~ The Risk Averse Alert

Wednesday, June 06, 2012

Weak Hands Work the Rumor Mill

Index momentum ... still falling.

VIX momentum ... still rising.

Bullish Percent Index relative strength ... still in the death zone.

An imminent stock market crash ... still a heightened risk.

Empty "rumors" about the impossible (namely, saving the EMU sans any meaningful debt write down) lighting a fire under the most hopelessly bankrupt of all (namely Citigroup and Bank of America) and warming the entire market to its best day of the year (see $NYAD) only the more exposes a market dominated by weak hands. Were there any truth to such an unlikely prospect as might keep the EMU intact — this to the effect of sustaining current debt loads and opening the door to a long-lasting financial and economic recovery — then a great deal more balance between the buy- and sell-side probably would have been reached today, while strong hands venturing to profit over the greater duration of recovery believed upcoming likely would have made their presence known (via a marked pickup in volume). What we got instead was the same old, same old tired song and dance whose effect buys some time for garbage to appear desirable notwithstanding an unprecedented maggot infestation throughout every layer of the trans-Atlantic banking system's capital structure. Of course, buying time has been the story of the past three years, as well. However, today's empty rumor iteration being absent any prospect for added hyperinflationary happiness might better be called the emperor's new clothes. Indeed, space for today's outsized gain might have been made from the combination of ECB inaction and the EMU's non-collapse. Too bad neither condition can last. Once either state invariably reverses, the banking system is likely to disintegrate soon afterward. Team Fraud is trapped, and that can't be said enough.

NYSE McClellan

The above noted divergence between the NYSE McClellan Oscillator and the NYSE Composite Index more or less graphically depicts the work of weak hands who in large measure are likely consumed with a loathsome fear of insolvency and are hanging on for dear life. This state of affairs might make for outsized gains when the walking dead receive a rumor-driven reprieve fueling a short squeeze, yet judging by the growing stench coming from the broad market's internal behavior of late (see the Summation Index, as well as the 5% and 10% Indexes above), today's reprieve all too likely will be short-lived. Risk of an imminent crash remains elevated.

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!