Briefly consider the following relative strength read....
Contrasting conditions over the course of the market's advance off March '09 bottom we presently find coinciding with the move higher since early-February relative strength of a different character — something on the surface that, in other times is constructive, yet now suggests sheep are being led to slaughter.
The short squeezes of March and July 2009 are well-documented. RSI's atypical — strictly one-sided — launch in these two instances offers graphic evidence something other than a balanced component of healthy fear coincided with the market's lift higher.
Look at it this way: if strong hands were buying and venturing to remain net long, weak hands would have been selling — bringing greater balance to relative strength — as well as becoming that future buying interest to whom strong hands would offload their long stakes.
Relative strength balance, although lacking during those monster advances launched March and July '09, is being evidenced during the present advance off early-February 2010 bottom, however. So, let's put this into context and cut right to the chase: suckers, quite obviously, are getting their fill right now.
Just look how high March and July '09 short squeezes carried the S&P 500, while RSI over the course of those respective advances did not cover quite the ground as has been gained since early-February. Consider this, though, in the context of how relatively subdued has been the S&P 500's present advance, despite the best relative strength rebound since March '09 bottom.
This suggests those weak hands — neither buying nor selling for the greater duration since March '09 ... but rather hanging on for dear life — finally are stepping up and playing their part, as always, buying at top. Rather than selling all the way up ... they're buying now, taking the last of long positions strong hands can skillfully offload at the present moment.
How weak are these hands? Just look at the volume of shares exchanged. They're so weak they have to be spoon fed.
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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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