Special Risk Capital Management LLC

Back & Forth: The Summer Doldrums July 16, 2011

Happy Summer (those in the Northern Hemisphere).  Which is the theme of this market. 

The Doldrums are known in sailing circles as an area near the equator where the winds just pooh out, therefore becalming the sailing ship.  No wind means no progress; you can’t even tack into the wind if there isn’t any.  This area is caused (quite logically) because it is the area where the Northern Hemisphere and Southern Hemisphere winds come together.  How appropriate.  In the US we are consumed by the debt talks; the Republican and Democratic “winds” come together and the economy is becalmed.  A similar situation exists in Europe with their debtor country “issues”.  As a result, we investors get whipsawed back and forth between the two without much progress.

The chart below of the S&P 500 Index, 2011 Year to Date, highlights our situation.  Looks like we’re bouncing between 1350 near the top and 1265 near the bottom.   Arg !  (as a pirate would say)

Earnings from the 2nd Qtr. are starting to come in, and so far they are a mixed bag.  Tech leaders like Cisco and Rim are having a tough time in this economy and market place, while other “youngsters” in their field are doing pretty well.  Since earnings will drive stock prices over the long-term, this will be interesting.

What’s “hot”?   I see Chinese stocks (very volatile) and US Small Cap stocks.  Sectors include: Life Sciences (bio-tech), Leisure, Computers (select ones), Oil & Gas, Textiles and Speciality Retail.  Precious metals have kicked up again as well.  In the S&P 1500 world, 46% are in Accumulation, 29% Neutral and 25% in Distribution; that is fairly healthy, a good sign.

So, what now?  We’re in a news driven market (again) and we need a prevailing wind to break out of these Doldrums.  A debt solution, even a minor one, would likely have the market break to the up side.  Bad news / no solution would not be very positive.  I suggest being ready for either one, because when the wind comes, it will blow Fast and Hard.

Have a great week !  (and feel free to leave comments at the top of these posts)