Special Risk Capital Management LLC

Cautious thoughts on a tentitive Market January 15, 2011

O.K., the New Year has begun and it’s been fairly strong.  So that’s the problem?

Actually, none as long as the trend of generally positive earnings and economic data continue.  But, we may be “priced for perfection” more than we think.  Case in point was Coin-Star, the company that has the change counter machines and Red Box video rentals in stores.  It missed earnings estimates by a sizable chunk and the stock dropped nearly 35% in less than an hour.  What else is the public fond of?  Precious Metals (i.e. Gold).  They also got hurt this week.  Be careful out there, as there is little patience for recovery by the pros.

That brings me to what the pros appear to be thinking.  A quick glance at the Newsletter tab, a couple of clicks, will show the Sentiment survey at the bottom.  The “smart money” confidence is low, with the “dumb money” (retail investor) confidence being high.  Now this does not mean that a big correction is due, but it may indicate that there is little tolerance by institutions to wait out bad, or even poor news.  “Dance near the exits.”

What to watch for-  Right now (1-15-11), short term “swing” traders will be watching the 127.00 level on the SPY (S&P 500 ETF) intra day.  The cautious investor (that’s me) will be watching for a close below the 1254 mark.  Such action could forebear a correction of 5% or more.  But (as always), no one knows for sure.  What will be important is the volume on such a decline.  Will it be shallow or higher than the average day (meaning a rush for the exits).  I just feel that there are a bunch of folks with their finger on the sell trigger.

  Hope I’m wrong, because until that happens, it’s wise to maintain exposure of some degree to this market.  Sectors doing well include: Energy, Electronics (semiconductors) and Banking.  Retail and Precious Metals are taking a breather (so far).  The US Dollar was on a roller coaster this week, up alot, then down alot.  The US$ price action is affecting commodities as well (which have been doing very well, thank you).

Have a Great Week!  (US markets closed Monday due to M.L. King Birthday)

P.S.  I’m always interested in your comments.  Post away (below this entry).