Biderman and Me ~ The Risk Averse Alert

Wednesday, August 08, 2012

Biderman and Me

Another view of the corrective wave forming since early June finds the S&P 500 prospectively forming a "rising wedge." The only thing uncertain about this prospective view is the matter of when this rising wedge began to unfold.


The a-b-c wave up from late-July presently reaching its peak might be supposed forming the 3rd wave of this prospective rising wedge. Both relative strength and momentum measured at several intra-day intervals (1-minute, 5-minute, 15-minute) support this view. These registered their strongest readings since early-June bottom. Since Elliott third waves typically are the most "dynamic," this conclusion is objectively substantiated by these strong coincident technical readings.

Of course, this prospective rising wedge is thought forming wave c of 2 of five waves down from this year's peak. The question is when did wave c of 2 begin? Was it late June? Or is wave c of 2 in fact forming off early-June bottom? Impossible to say for the moment. The rising wedge drawn above graphically presents the latter possibility. This is not to suggest this is the preferred view, however.

Per the still very much living prospect the market is on the verge of collapsing in a spectacular Elliott 3rd wave down, Charles Biderman of Trim Tabs both shares my outlook and likewise provides noteworthy perspective you would be wise to consider...

Namely, it's the prospect of being trapped on the long side. To wit, waking up one day in the near future to find futures markets pointing major indexes sharply lower (say, 5-10%), only to double that loss over the course of the trading day, while substantially extending that day's loss in the immediate days that follow. Sheer chaos, circuit breakers and all, trapping those who are long equities, either because it is their job, or because they must be on account of sheer desperation dictated by their [insolvent] credit market exposure. This very real risk is the reason why momentary losses on short positions simply are of little concern worthy a table pounding venturing rationalization.

Either you are aware the core of the trans-Atlantic banking system is at grave risk of being compromised, this any moment now, or you believe lenders of last resort remain credible forces in the current environment, and so will succeed in forestalling the banking system's collapse. Biderman and me, we're not alone. The technical case is overwhelmingly suggesting that, in the stock market there is no confidence a positive outcome will come from the past several years effort to prevent the trans-Atlantic banking system's demise. This case, long detailed in these lonely parts, remains as conclusive now as it was two-and-a-half years ago.

So, the story Biderman tells at about two minutes into the above video, describing a "trader buddy" whose $100 million loss shorting tech in the late '90s has turned into a net worth in the range of $10 - $90 billion, really is worth pondering here. A fine demonstration of how "patience pays."

Fast Money
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© 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.

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