Special Risk Capital Management LLC

At The Tip of the Triangle August 26, 2011

OK . . . this was a very good week; it must be true because CNBC said so.  And it was, if you go back only 5 days.  Go back just a little bit further and it’s “Not So Much”.  The graph below of the S&P 500 shows that we’re still in a very wide range, but that could be changing. 

The triangle drawn on the chart could be an indicator of a potential break one way or the other.  The problem with symmetrical triangle patterns is they could go either way, so no help there.  What does concern me is what I see in the background.  I see folks happy to sell on down days (note the high volume with those bars), but not very happy to buy (significantly lower volume on up days).  It just looks like a wait and see posture.  So, we will.

Is money flowing back into stocks with this weeks rally?  “Yeah, No.”  Looking at the percent of stocks in Accumulation (green colors) compared to Distribution (the red colors) for the broad S&P 1500 Index would seem to bear out the lack of enthusiastic buying.  Improving, but hardly a rush to get back in.

Chart courtesy of www.highgrowthstock.com; copyright 2010-11

So (IMHO) if you’re an active trader, I’d continue to be very watchful if you are long in here.  You may have purchased at an ideal time, and maybe not.  Stay close to the door and take small positions as the trend really has not changed yet.  If you’re like most folks, you’re not going to pick the bottom, so don’t worry about it.  You can get back in with a measured cadence; it’s not all in or all out.

Still looking for comments, let me know what you like and dislike, I’m flexible (to a degree).  And, as always, you can easily blow up a graphic by simply clicking on it; pretty neat.

Have a good week & be careful out there.    ……..  Tom  …….