Special Risk Capital Management LLC

Next Week, the Markets First Test of the Year January 14, 2012

Watching the FX (foreign exchange currency) market last week was interesting.  In a matter of 24 hours, the Euro/US Dollar spread (value of the Euro compared to the US$) rose dramatically over one hour, then plunged just a s fast.  The reason:  Spain & Italy sold debt (bonds) at reasonable interest rates (bullish), then Greek officials declared that Greece will likely enter bankruptcy soon (bearish).  Wow, talk about a whip-saw.

But the US and European markets had little reaction, just a slow march up.  This is good news, but one wonders if this back and forth is already “priced in” the market.  So . . . next week should be interesting; the first real “test” of this market strength in the new year.  That test just maybe solid news that Greece may in fact default on its loans despite the infusion of money from the EU.  If the markets just blip down on truly bad news, then I believe that we’re real “off to the races”.  But I’m seeing some signs of weakness here and a small correction would actually be healthy. 

Here’s the S&P 500 Index . . . “Big Picture”:

Notice that right after Christmas, we did have a nice breakout above the downward sloping trend line and above our 1260 price level (in purple).  That level has been important going back to mid-June of last year.  A correction that cut thru that level quickly and decisively, could spell more than just a correction.

Right now BioTech, pharmaceuticals, Healthcare, and select Industrials and doing well.  Index wise, Small and Large Cap. Value are strong.  Let’s see where this goes.  Have a Good Week !