The Risk Averse Alert

No doubt NASDAQ's relative outperformance versus the S&P 500 over recent months has been far more decided than was thought likely here back in May. Evidently, the more widely held, higher capitalization trash in the S&P 500 has become so wildly overbought, relatively speaking, and more difficult to rationalize that, despite its longstanding, relative revulsion (a fact testified by a cumulative advance-decline line locked in a decade-plus death spiral), NASDAQ is deemed a more opportune home for mispriced capital manufactured by the Confetti Fed. The question now is where will NASDAQ's Composite index go from here?

It is difficult not to be concerned over the possibility that, NASDAQ could be sent on another "new era" swansong preceding a broadening, hyperinflation-induced revulsion of debt securities whose effect is sure to crush a secondary market stacked with companies possessing more excess capacity than you can shake a stick at. True as it is Confetti has identified excess capacity as providing a "non-inflationary" free pass to Fed policy venturing to prop up a still growing mountain of grossly mispriced debt hanging over it, excess capacity's continued shedding while system-wide leverage is but further increased conceivably could excite animal spirits of captive souls consumed by monetarist fantasies believing the lilliputian Fed a bottomless backstop, and so stoke a NASDAQ melt-up.

Having yesterday noted McClellan Oscillator-related confirmation of NASDAQ's advance since its November 2012 bottom, we really need see this technical measure display increasing weakness before we might more confidently discount possibility NASDAQ is on the verge of another positively insane moonshot.



Yet there's still significant overhead resistance, the likes of which also approximate a prospective neckline to a head-and-shoulders top whose beginning dates back to the mid-1980s. Possessing fair symmetry and a likewise prerequisite spike in volume upon the [upward sloping] neckline's violation in 2008, five years now spent reacting back to the neckline bring NASDAQ's Composite index to this present, decisive moment.

Here, too, we see some interesting technical similarity to conditions existing back in the late-90s when NASDAQ's Composite was approaching its peak. More muted relative strength registering in reaction back up to overhead resistance certainly seems fitting, given a cumulative advance-decline line that has remained in a death spiral since Y2k (the likes of whose recovery since November 2012 appears little more than a dead cat bounce in the grand scheme). That momentum (see MACD) remains positively biased, as well as muted in relation to its Y2k best likewise is fitting prelude to an upcoming, hard turn south should overhead resistance prove insurmountable. Again, given extremely poor advancing issue participation and extremely poor leadership (albeit improving since November 2012, while still generally lagging in the grand scheme), this barrier's breach seems rather unlikely to be sure.



© 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.

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