Saturday, October 31, 2009

Trick or Treat, Wall Street


Breaking news on NASA's search for benevolent life on Mars willing to back the U.S. Treasury!

About halfway through the following video footage comes shocking revelation that, members of team bailout, hoping to avoid terrestrial scrutiny, have taken to the cosmos only to be condemned by a newly discovered life-form for what they truly are...




Bulls make money...

Bears make money...

And now comes the rest of the story.




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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.

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...

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Friday, October 30, 2009

A Voice of Old...


Well, if today didn't turn out looking like the first wave of a third, reasserting even more decidedly — yet still relatively calmly — the wounded call gasping, "I've fallen and I can't get up!"

(If when I turn 130 these voices in my head become a problem, remember these ring side seats where it all started.)


SPX 5-min

Look at that beautiful RSI stuck on the sell side ... and today once again never plowing deeply into extreme territory ... then regaining balance ... this as $SPX flat-lined ... Mon petit chou! ... I bid you Adieux! ... it appears a train wreck on a third wave of a third is arrived.

Yet might this too be but another false scare?

Maybe so. But has not today shown a prior day's fright, momentarily brought delight, is vulnerable to a bigger scare still? And today's ... to end the week no less! Dangerous.

What's that I hear ahead?

Kaboom.



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...

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Thursday, October 29, 2009

One Completed C-Wave From a Train Wreck


Today's trade essentially brought the effect that, following Tuesday, was thought likely Wednesday (see RSI below). Yet coming on the back of Wednesday's notable weakness, as well as unfolding the way today's trade did, only a slightly altered view of developments since top — objectively supported by coincident technical conditions — presently is justified and this likewise supports probability the steep hit that might have come today is but hours from becoming manifest.

Just to be clear ... in no way has today's advance threatened the likelihood top is in.


SPX 5-min

Here's one thing safe to suppose about today's trade: it formed an Elliott "C" wave (or some large part of a C wave). In a word today's advance can be characterized dynamic, much as Elliott third waves typically are (a "C" wave being a third wave of an Elliott corrective wave). Today's dynamism is vividly displayed via RSI, which spent the entire day on the buy-side of its balance.

Regarding yesterday's weakness, we see a similar dynamism associated with it, too, as RSI remained decidedly stuck on the sell side of its balance during the entirety of the S&P 500's decline since late Tuesday. Thus, a "C" wave likewise is thought to have formed. This "C" wave completed a "zig-zag" (a 5-3-5 Elliott corrective wave) down from early Monday.

This zig-zag [down] formed wave b of ii (and in so doing alternated from wave a of ii, thus satisfying the Elliott Wave Principle's Rule of Alternation). Wave a of ii had previously unfolded to take the form of an "irregular flat" (a 3-3-5 Elliott corrective wave).

Now we see wave c of ii largely unfolding today. Just how much higher this might carry $SPX is tonight's wonder.

First, that the counter-trend rally off March '09 bottom ended with a fifth wave failure (i.e. wave 5 of v of 5 of C of (B)) offers subtle evidence of developing underlying weakness. Add to this certain technical measures (through yesterday) lurching to the negative to reach absolute readings relatively worse than anything registered over the duration of the multi-month counter-trend rally just ended.

So, with weakness apparently growing, then, we should be on the lookout for further signs of much the same developing even now. That is why I suspect wave ii might take the form of what in the Elliott Wave Principle is called a "running correction." This, indeed, would be a foreboding development paving the way for rapid descent toward respective 200-day moving averages.


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...

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Wednesday, October 28, 2009

Buh-bye October 2009 ... Hello October 1987


Now we're cooking with gas!

I must say ... the picture so far this week looks rather October 1987-ish in the way selling appears to be cascading with no sign of a let up in sight...


SPX 5-min

Note how since Monday's thud RSI is failing to show any sign of $SPX regaining its legs. No bounce yet has generated any notable improvement in relative strength.

Note, too, how throughout today's continuation of this week's selling RSI failed to reach a sell-side extreme. Indeed, you might say that, as much as apparently can be, the buy-side and sell-side of the trade have remained relatively in balance.

These two notes taken together suggest more selling is likely straight ahead. In fact, tomorrow could be downright ugly — down 5% or more — and yet, this would be but a taste of far deeper selling still to come.

Per various technical measures today only furthering negative extremes thus far reached during the turn away from top, what's another day doing much the same? Likewise, a period in which a momentary bottoming process develops (with all due technical divergences registering) subsequently should be expected. This, of course, would occur as major indexes fall still further from their respective tops.

Bottom line, today's trade appears a terrible blow. Yet that the day's selling might be characterized as entirely orderly (this despite never showing any sign of abating) gives rise to the possibility of such lopsided, disorderly selling as is fitting the moment ... bringing the present, initial move away from top to its crescendo.


$SPX

One is but left to wonder just how quickly some measure of panic might sweep across the stock market. With noteworthy bankruptcies and runs on hedge funds making news these days a perceived heightened need to raise capital among those players affected risks a rush to the exits it seems. A rapid collapse back to respective 200-day moving averages just might be the order of the day.


$SPX

All color-coded for your pattern matching fun! The risk of a sudden slide appears no pretender...


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. 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, October 27, 2009

Panic Alert!


Just the other day I mentioned one lesson learned last year: the stock market is a place where capital can be quickly raised when need be.

Another lesson learned in 2008: when investment bank CEOs give reassuring assessments of the present, still volatile state of things, it just might be time to panic! Isn't that right, Mr. Schwartz?

Well, believe it or not, today, the man who says, "no one foresaw last year's financial crisis" (care to buy a bridge?) said, "the risk of financial Armageddon has passed."

(By the way, Mr. Dimon, congratulations for going on record with the most ridiculous statement one could possibly make at a major top. They say success is not made by what you know, but rather who you know. I see what "they" mean.)


SPX 5-min

Per possibility top is in ... you see above how the Elliott wave count entertained over the past week evolved to complete wave v of 5 of C of (B). Wave 4 — a complex Elliott corrective wave — ended in the range of the fourth wave of one lesser degree (i.e. wave iv of 3 of v of 5 of C of (B)). Wave 5 was a fifth wave failure. All very standard Elliott Wave Principle formulations.

Yesterday's sell-off appears all the more a crushing blow followed by today's miserable trade. Once again, though, RSI might be suggesting a bounce is near. However, if top is in, chances are any bounce will be limited (quite possibly bounded by what could be a head-and-shoulders neckline drawn above). Likewise, RSI's apparent improvement during today's trade might only represent a balancing of buy-side and sell-side interests — the sort of thing one should expect during a still-unfolding wave down.

Judging by what has come to pass since top, a first, second and third wave of five waves down appear to have unfolded. At present, then, a fourth wave is seen forming. If this is correct, then one might expect RSI to better yesterday's best reading (registered during the formation of the second of five waves down) before the fifth of five waves down unfolds.

This view is all very tentative, so let's see what develops. Looking out some days we might find major indexes trading at levels quite near where each presently stands, as this yet-completed, initial move down is being corrected. In the process we should see various technical measures further setting up the stock market for an old-fashioned beating with an ugly stick.

As mentioned yesterday, some technical measures are at levels where over recent months the market has reversed higher. Supposing top is in, though, we might see these measures deteriorate further than has been the case over recent months. This would be seen subtly signaling the beginning of the end, wherein a wicked decline then would appear closer on the horizon.


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...

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Monday, October 26, 2009

No Telling Whether This Time is Different


One easily could come up with reasons why top might not be in. Viewing a number of underlying technical measures one sees their present position being quite similar to recent instances when major stock indexes were bottoming prior to bouncing still higher.

So, could this time be different?


$SPX

Relatively speaking, October's bounce not only continued the trend of growing, underlying technical weakness. The entire advance lacked any technically noteworthy follow-through to the short squeeze that began it. You see this in the performance of the McClellan Oscillator...


NYSE McClellan

Apparently (and volume confirms this) the crop of suckers willing to bid dead equity higher is thinner than Ghandi. Yet this also was true late-August when the NYSE Composite rallied to new highs, post-March '09 bottom. So, can ongoing restraint in exercising risk averse prudence as would otherwise lead to increased selling continue?

Time will tell.


SPX 5-min

Today's collapse brought the S&P 500 to the lower end of the range recently targeted as a likely objective for the Elliott corrective wave that began Thursday, October 15, 2009 (i.e. the range of "the fourth wave of one lesser degree"). However I question whether my Elliott wave count since October 5th remains valid. Rather than expecting one final move higher, five waves up from October 5th instead might be in place.

If this is correct, then the stock market's counter-trend rally off March '09 bottom has ended and the anticipated turn for the worst has begun (assuming my Elliott wave count is correct).

Yet since other possibilities still are alive — possibilities which might take major indexes not much higher — I will refrain from definitively claiming top is in.


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...

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Friday, October 23, 2009

Countdown to Calamity


There is an overload of dream weavers (right up to the likes of Ben Bernanke) pretending there's hope for team globalization now that the wisdom of closing the barn door on wildcat finance has been established. Truth is the hoof prints left by the escaped horses are so faded there's no telling how crazed the unbridled beasts might now be in their battle for survival.

The lesson from 2008 is the stock market also is a tool used for quickly raising capital (as well as raising urgency leading to legislation paving the way for financial takeover of sovereign nations). This might be worth keeping in mind should some unpredictable spectacle soon sweep upon the scene because, technically speaking, last year's destructive stock market trend appears very near being reasserted. Today's trade was entirely fitting the recent view recognizing possibility top is at hand.


SPX 5-min

RSI's noted improvement, as well as its remaining today on the sell-side of its balance while $SPX appears in the process of bottoming is seen signaling the approach of the anticipated, final wave higher completing the stock market's counter-trend rally off March '09 bottom.

The objective of this pending advance should reach no higher than $SPX 1110. Should a prolonged drift develop in this final wave up (possibly somewhat mimicking what you see highlighted in the green box above) I would not be the least bit surprised. Likewise, a fifth wave failure resulting in top registering short of this week's peak is not out of the question.


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, October 22, 2009

Laser Focus on an Imminent Top


Let's zoom in even closer and analyze wave v of 5 of C of (B). This wave — itself subdividing in five component waves — marks the stock market's advance since early-October ... and presently is thought leading to top of the counter-trend rally since March '09 bottom.

(The Elliott wave count labels shown below should have been underlined were they to conform with $SPX Elliott wave count shown over the past couple days. My bad.)


SPX 5-min

The first wave up is seen beginning Monday, October 5, 2009. The greater bulk of wave 1's advance occurred the next day, 10.6.09 (the first day you see above).

Wave 2 unfolded in simple, zig-zag form. Thus, by the Elliott Wave Principle's "rule of alternation" wave 4 can be expected to take a complex form.

The component waves of wave 3 (i.e. waves i, ii, iii, iv and v) unfolded textbook Elliott Wave Principle. When you look at the next chart note the range in which wave iv of 3 traded. This is the "fourth wave of one lesser degree" and is the area to which wave 4 can be expected to fall.


SPX 5-min

Precisely what happened this morning...

This notwithstanding, though, it is not yet certain wave 4 has ended. Nevertheless, wave 4 has taken a complex form, as expected.

To summarize, then, $SPX 1080 was not the "critical support" it was thought yesterday. And top to the market's counter-trend rally off March '09 bottom still appears imminent.

The S&P 500's final leg should carry the index no higher than the near vicinity of $SPX 1110 (for the reason mentioned Tuesday, given my presently favored Elliott wave count warning of an imminent top). Likewise, look for accompanying volume to come in lighter than last week's peak volume (at the conclusion of the third wave of five waves higher since October 5th).

... Or look for accompanying volume to exceed anything registered since March '09 bottom. Given the trend during the entire counter-trend rally wherein volume has spiked at the conclusion of third waves, an extraordinary volume spike might be registered at top. After all, a C wave (such as the one right now seen nearing completion) is an Elliott corrective wave's third wave. A volume spike, then, likely would clinch my conviction top is in.


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...

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Wednesday, October 21, 2009

Add Contracting Volume to Bull Trap Indictment


Zooming in on the possibility of an imminent top...


$SPX

Add to typical RSI and MACD degradation, wave iv of 5 versus wave ii of 5, (noted yesterday) we see continuation of the trend where peak volume has occurred at the end of third waves in related, 5-wave sequences since March '09 bottom ... extending even to the present unfolding of wave v of 5 of C of (B).

Likewise, volume continues its contraction during successive advances higher off March '09 bottom. This reads the higher she goes, the less they fear. And this disposition remains as ill-advised now as it has been for months.

Volume, too, supports the Elliott Wave count you see assigned to wave v of 5. That's why one more move to a new counter-trend rally high (on lighter volume than last week's peak) could unfold before the floor holding up this technically-indicted bull trap gives out. Right now, the near vicinity of $SPX 1080 is critical support were the above indicated Elliott wave count correctly portending a very important top within hours...


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, October 20, 2009

An Exciting Top Sighting!


Because reaching the stock market's anticipated top in its advance off March '09 bottom has been somewhat prolonged (yet entirely accounted for all along the way) it has been natural to suspect this course extending time levitating might continue in a way that stretches to the max the Elliott Wave form presently unfolding. The thinking has been a rising wedge might be forming — either off early-July's bottom or off early-September's.

Indeed, this might still be the case. However, there is a simpler view of developments since early-July suggesting top could be but hours away (if not already registered)...


$SPX

Key to this view remaining viable is wave v of 5 not exceeding the length of wave iii of 5. As you can see it is getting close. By rule (put forward in the Elliott Wave Principle) a third wave is never the shortest "impulse wave" in a 5-wave Elliott Wave sequence.

Confirming the prospective view presented above is the fact that, in forming wave 5 of C [of (B)] wave iv of 5 displayed typical RSI and MACD deterioration relative to wave ii of 5.

Well, far be it for me to pound the table on calling top ... but truth be told I am rather excited by the imminent prospect this view presents.

Funny thing is I had mentioned back in August how the historically difficult months of September and October might find the stock market holding up, and in so doing out of the woodwork would crawl those claiming, because the worst historical period in the stock market had passed, the trend was destined to lead up, up and away. It is in this vein Fast Money's Joe Teranova recently has been beating the "money managers chasing performance" rationale, suggesting the market is likely to finish out the year on a positive note.

I am not the least bit persuaded. Much as was suspected a couple months ago, the market has survived its most difficult historical period only all the more technically weakened and primed for a thud.

Rick Bonsignor, Chief Market Technician at Execution LLC, appearing today on Bloomberg TV offers anecdotal evidence that, money managers flush with cash is a myth. And Stephanie Pomboy, Founder and President of MacroMavens, offers a cogent historical contrast in economic performance strongly suggesting there is an unprecedented, fundamental disconnect behind the stock market's drive higher.

Truth is, though, neither of these two offer any more evidence than is plainly revealed by the technical tea leaves. Thus, suddenly, the suspicious performance of both the NYSE and NASDAQ McClellan Oscillators during this month's advance is viewed alarming.

Certainty to claim top has arrived, indeed, is growing. In fact, top may have been registered but hours ago. If not, then there might be only a few short hours remaining before the precipice finally is reached...


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, October 19, 2009

A Check On U.S. Stock Market Trend-Leader NASDAQ


Tech, Shrek. The green monster still looks sick and so should soon turn red...


$COMPQ

Nice recovery ... at least on the surface. Who could have predicted it?!


$NAAD cumulative

Under the covers, though, NASDAQ's rise is a wee thin on advancing issue participation. This after reversing a steep decline in March '09 with no sign whatsoever of building underlying strength indicating an important bottom possessing staying power being put in place (like happened in March '03) ... and this after months on end during which time tech, generally, was being drained.

Tech still is being drained. Now, however, is time when dumb money is drawn in. Clearly, the composite of issues trading on NASDAQ remain under pressure. A return to the NASDAQ Composite's Cumulative Advance-Decline "death spiral" trend but awaits initiation of $COMPQ's descent to levels last seen in 1987...


NASDAQ monthly

Sometime early-August was the last time I noted that, NASDAQ 2200 was by no means out of the question. Above was one reason why this ballpark objective appeared reasonable. A couple former support lines (now resistance) are converging here.

Now, about the present position of the monthly NASDAQ Composite's RSI. This reads the bounce off March '09 bottom is just about done, I would say.

And if you return to the first chart above ($COMPQ) and key on MACD (bottom panel), consider the present momentum trend in relation to the same noted last year. Before the lug nuts came off the stock market last autumn (2008), momentum likewise had been fading ... much as has been the case for many months now. Hmmm.

The point is ... once the market rolls over things could turn ugly extraordinarily fast.


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, October 17, 2009

Why tradeMONSTER? A Proposition


Diversify your brokerage risk with tradeMONSTERIn times like these you really should think about diversifying your brokerage risk. Spread your capital around.

This way, if something unforeseen should occur, preventing you from gaining access to your current brokerage account, you will not be left out in the cold until things are straightened out. Months might pass. This could put you in a bad spot.

Listen, you simply cannot be too safe in a day and age when U.S. Treasury Bills yield a fraction of one percent. The risk of calamity is very real... Even Cramer agrees!


A Risk Averse Hedge Fund Anyone?

In the spirit of full disclosure I receive a $150 referral commission when you open and fund a tradeMONSTER account. Rather than pocketing this, I thought it better we put it to work in a closed-end hedge fund.

My thinking is along the following lines...
  • Of the $150 referral commission I receive from tradeMONSTER, $100 will become your seed capital into the fund and $50 mine.

  • Trading would mimic that presently made public via my Trade Notification arrangement, employing the buying and selling of ProShares Ultra ETFs as well as stock index options. Contrarily, the fund could be restricted to trading stock index options exclusively at such time as an anticipated period of heightened volatility appears present.

  • Trading would commence either on a certain date or once a maximum number of stakeholders is met.

  • The fund will cease operating upon reaching a set objective (say, $1,00,000) at which time the proceeds will be divided among its stakeholders.


A Zero Risk Opportunity

With every indication the stock market is at great risk of suffering a terrible loss over the next few years this raises the specter of a wildly profitable, speculative opportunity trading stock index options, wherein a tiny stake can be multiplied into a small fortune.

Thus, the ideal stakeholder in this Risk Averse Hedge Fund might be someone with little or no experience trading options, because having skin in the game (albeit at no cost) offers a great way to discover the power of options in periods of heightened market volatility.

So, open a tradeMONSTER account, then send me an email indicating your interest in this proposed Risk Averse Hedge Fund.



* * * * *

© 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, October 16, 2009

Reminiscences on a Decade-Long (and Running) Distribution


Another "like-from-like" view for your consideration...


NYSE weekly

Where to begin...

First, the contracting triangle (with a rising bias) formed from 1987-1994. This is the area to which an Elliott corrective wave that began October 2007 is expected to fall over the next couple years.

Drawn is the "worst case scenario" thought possible at the present moment. The general process depicted is formation of a bottom in a similar fashion as occurred from 2002-2003. Thus, a "like-from-like" form is seen developing. The present instance is for good reason — both fundamentally and technically speaking — feared potentially more volatile than the 2002-2003 period.

RSI's behavior is seen confirming the likelihood of a further gassing in the stock market, such as is depicted above. Over the past decade new NYSE Composite lows have been matched by RSI. This "technical confirmation" indicates weakness is building.

Some time ago I noted the different message RSI was sending following March '09 bottom versus March '03. Whereas fear was seen remaining intact as bottom formed from July 2002 - March 2003, it contrarily was rather quickly vanquished in the recent instance. Thus, March '09 bottom is considered less convincing, and so is suspect to being retested in the very least.

Given this distinction one might better judge, too, the current RSI similarity with its post-bottom, March '03 configuration. Thus new, NYSE highs are not likely this time around, as conditions instead are prime for a demonstration of the Elliott Wave's "Rule of Alternation," where in the present instance new, NYSE highs fail to materialize. Indeed, overwhelming evidence strongly supports this likelihood.

RSI's downward sloping bias since the late-1990s coinciding with an essentially sideways $NYA trade on notably elevated volume leaves one to conclude a transfer of shares from strong hands to weak — a distribution — has been occurring.

And look how far along in this process we have come. Thus, with so much time having already passed, and with unprecedented damage recently done, how strong, really, are strong hands these days? How might a market going on two years in which the greater bulk of counter-trend action has been delivered via short squeeze react when its downtrend is reasserted?

In this context, too, one ponders the wounded beast. Is this not among the most unpredictable and dangerous of creatures?

Exhibit A is Jamie Dimon according to Congresswoman Marcy Kaptur (D-OH). Is that political capital I smell burning? And what will come of increasing attacks on a Federal Reserve seen ducking accountability? (Even worse are reasonable charges of Fed treason.)

The point is with players on both sides of the balance willing to wage war (in the case of Dimon, stupidly so) ... and "strong hands" in the market having at their disposal only the technical means by which short squeezes are affected ... does this not set up for some shock — an outlier whose impact effectively traps forever the hope-filled majority who presently are holding shares rather than increasingly offering their grossly over-priced equity up for sale?


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.

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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Thursday, October 15, 2009

Why Stocks are Grossly Over-Priced


My, my, my... how quickly the illusion of wealth has vanished with the seizure of Wall Street's infinite credit creating machine: three in four companies are reporting contracting revenues, and this in comparison to a not so sparky Q3 '08. (Gulp)

And we have been warned to expect a slow turnaround. Yet there's the stock market behaving as though a return to growth is not only certain, but likely to be robust, too. That silly adage about the stock market looking out 6-9 months in anticipation of coming economic conditions surely is proving useful to those feeding suckers their over-priced shares at a time when revenues still are collapsing.

Now, what exactly do I mean "over-priced?"

Given the broken state of the global credit system, equities offering an historically low dividend yield stand at greater risk of outright being sold because the asset cannot produce the return necessary to help meet debt-related obligations made before (and since) the credit system froze — obligations that no longer can be easily papered over.

No matter that credit spreads are contracting. The simple fact is capacity to create new credit of the sort that largely propels financial asset prices higher has been crippled. Without this there is limited ability to mask the mountain of mis-priced risk built up over the most recent decade in particular.

Big problemo for lowly equity...


$NYA

At the time of the mid-June '09 peak I went through the exercise of comparing the counter-trend rally up to that point with last year's rally from March - May 2008. RSI provided the foundation for that analysis. Its divergence (at mid-June '09 peak versus early-May '09) was reason to suspect the market's advance off March '09 bottom might be ending, and resumption of the Elliott corrective wave begun October 2007 might then soon commence.

Well, changing the view to one assessing each counter-trend rally in relation to the decline preceding it ... and as well noting the manner in which each rally similarly unfolded ... the "like-from-like" qualities each presents are rather intriguing at this point.

Likewise, the current RSI divergence (top panel) is flashing a warning, as is astonishingly long-deteriorating momentum measured by MACD (bottom panel).

Yet, too, both measures still remain on the "buy side" of their respective ranges. So, all due restraint claiming top is in appears justified.

Nevertheless, this picture still suggests top is nigh. And there's more to this that meets the eye. The picture above begs counter-trend RSI analysis with comment on not only the apparent waning power of the short squeeze, but the fact that, short squeezes apparently have been the principle means by which counter-trend rallies have been mustered at all since October 2007 top.

Speculation on probabilities ahead gain focus given recognition of this dynamic. I should find time this weekend and speak further about this...


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.

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, October 14, 2009

JPM Says Sideline Cash Is There For Good Reason


Who are these money managers with hoards of cash sitting on the sidelines waiting for a pullback? And how does this group stack up to those money managers whose even greater hoards of invested capital took a bath last year?

I have the sneaking suspicion the former group is dwarfed by the latter. That's why volume continues contracting as stocks rise. Money on the sidelines is there for a reason (much as was the case in May '08 when the same $3.5 trillion was "wasting away" in cash). And those money managers who essentially have been all in (and will be forever) surely are smarting from the greater imprudence their position has relegated their perceived capacity for making sound financial decisions.

Fool me once, shame on you. Fool me twice, shame on me. It is last year's majority of money managers turned into burnt toast who presently are making equity dead money.

Besides, better prospects have moved up the accounting food chain out of necessity, where hot, and perceived safer, corporate bonds are being chased with abandon (apparently but another bubble being blown to postpone the inevitable day of reckoning, and in the process further compromising security in the bond market — a trend that has been going strong for decades now, as the number of companies whose bonds are AAA-rated can be counted on one hand I believe).

Why would sideline cash be looking to jump in when a solid majority of shell shocked money managers still, after a 60% advance off bottom in a mere matter of months, are ill-prepared to press their bets? In other words, sideline cash has every reason to fear it will be the last man in, and this never is a good position to take in the stock market.

And why would sideline cash be looking to jump in when JP Morgan Chase is adding to its loss reserves? Does this not beg the question among other financial institutions: are loss reserves enough?

(Per JPM marking up by $400 million certain assets on its balance sheet, one wonders, given the small amount, whether this is a trial balloon and just how soon it might prove to be made of lead.)


$NYA

No point reiterating noteworthy technical weakness that only continues growing. Every panel still reads, "Going, going" and projects an approaching day when, finally, top will be in and stocks will be gone. Until then, any further upside remaining should be rather limited.


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.

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, October 13, 2009

Summary Statement of Fundamental Reality


With the recent collapse of Wall Street's securitization business came the end of a largely unregulated, private sector credit creating machine equipped with an infinite multiplier. This machine — principally powered via City of London connected offshore financial centers (OTC derivatives) — helped both build and mask all manner of financial and economic imbalances. Its seizure has blown a huge, capital sucking hole into the present financial arrangement. Most alarming is the fact this is occurring atop a gutted physical economy 3-4 decades short of such necessary capital investment as every nation requires to maintain some semblance of economic competitiveness. With capacity to mask imbalances born of wildcat finance obliterated, exposed is a global economic arrangement incapable of generating such surplus physical output as is required to both maintain and expand the economy's productive capacity, as well as ensure the viability of finance existing to facilitate economic functioning (let alone the viability of the mountain of side bets that have been created over the past decade or so in particular by the so-called "talent" on Wall Street).

Of course, nothing is set in stone. Yet the cold, hard reality is a well-entrenched financial interest will not let go of the illusion supposing a mountain of derivative claims against physical output are viable. So, further convulsions more or less are assured. Absent a global program coordinating low-cost capital investment in physical economy in measures that absolutely dwarf the present meager commitment championed by President Earth, Wind and Fire Obama the United States of America, as well as every industrialized nation of the world, is at profound risk of suffering both financial and economic dislocations of unprecedented proportion, because the planet's present physical capacity to generate such wealth as is necessary to service existing financial claims is woefully inadequate. This much is made painfully obvious by the past year's parabolic increase in new financial claims created against a physical economy whose shrinkage likewise accelerated (as well as by the fact these claims were placed by the lender of last resort).

Now, it really should come as no surprise that, even now, human nature would display the full measure of timeless consistency such as causes mass behavior to demonstrate a disconnect with the gravity of the systemic risk we presently face. Thus, even should the mightily hoped-for improvement in top line revenues materialize over the course of Q3 earnings season, one would be well-advised not to suppose the worst has passed. Indeed, if you should have an opportunity to view a company's earnings performance over recent quarters, duly note how any reported improvement appears but a tiny upward correction in a still-unfolding downward trend. Surely, though, no shortage of pump-meisters will lay claim to the economic reversal of fortunes thesis, playing "Happy Days Are Here Again," painstakingly tilling that fertile ground upon which strong hands presently are unloading dead equity at premium prices (albeit in piecemeal fashion because this is all the market apparently can bear).

Likewise, per any proclamation coming from corporate insiders suggesting better days lie ahead, before taking their word at face value consider their outlook eighteen months ago. Was it fearful of the growing risk of systemic collapse? If not, then it is rather likely any optimistic outlook will prove nothing more than an exercise in the art of story telling.

So summarizes fundamental thinking guiding my still negative intermediate-term outlook toward the stock market — a view whose technical substantiation is being confirmed every step of the way higher in the still unfolding, counter-trend rally off March '09 bottom.


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!