"I think the one thing that the retail investor can gain confidence in is you're not going to have a repeat of the fall of 2008 where you're going to have a riotous market that does a deep dive."
—Joe Terranova, Chief Market Strategist, Virtus Investment Partners (CNBC Fast Money, 6/15/2010)
Irving Fisher lives! If only Terranova's was an isolated case of optimism. Truth is his view more or less prevails. To most the market, at worst, has been correcting gains made off March '09 bottom. A collapse dwarfing 2008's is a possibility whose likelihood is even more remote than NASA finding benevolent life on Mars.
All well and good is the fact that, the bid underlying the market's advance off last week's bottom predominantly has been technical in nature — strictly a "trade" countering "oversold" conditions. Yet that volume remains significantly diminished relative to that accompanying the initial leg lower off late-April peak suggests fearlessness rules the day, demonstrating a deep-seeded belief there's not going to be "a riotous market that does a deep dive."
Were the prevailing sentiment otherwise, then we would see a good deal more selling whose effect would lift the volume of shares exchanged and quite likely challenge the bid. Yet very much like we saw during the market's advance from early-February to late-April no such fear — no "wall of worry" — is evident. The majority of equity owners are holding because no one believes "a repeat of the fall of 2008" is even remotely possible.
Should we expect anything different just prior to collapse?
All is quite as expected. Relative strength — both diverging from yesterday's best and evermore pinned to the buy-side as today's trading progressed, as if there were not a trouble in the world — suggests the past week's head fake probably has run its course.
Bear in mind, too, that although last Thursday's CME-driven panic saw long positions increasingly hedged with put options, it is the short side of the trade that, overall, is more greatly hedged with call options. So, odds are the market is not about to run away to the upside.
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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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