Special Risk Capital Management LLC

How Long Can This Go On ? February 4, 2012

Not to pour cold water on this rally, which has been impressive, but one has to ask: “How long can this go on?”.  Since the recent low on Oct. 3, 2011, the S&P 500 Index has gone up 22.35%, that’s at an annual rate of 81.85%.  Very impressive, but really?

The question is not IF, but When we will see a correction or at least a stagnant market.  There are some signs of indicator divergence, but these are just warnings, nothing to act upon . . . yet.  With so many folks conditioned to “buy the dips” it will be interesting to see if in fact heavy selling does occur, or just light selling volume.  There still are potential news issues out there.  Iran and Europe’s debt concerns come to mind.  With this much of a health gain under their belts, traders will not hesitate to lock in those profits.

A question:  where is there the most risk in a market, at the near term top or bottom?  If we think about that, the answer is clear.  The higher and faster the move, the greater the potential risk.  I’m NOT predicting anything, just a voice of caution in the very happy-go-lucky market place.

I am all “written out” this week, it’s been unusually busy.  My monthly newsletter is posted in the top tab.  Click on it to open, you’ll see a miniature graphic of the newsletter, click on it to enlarge it to read.  The market summary Price and Money Flow charts are posted in there, so I won’t repeat them here.  I’d love to hear back with your comments.  You can post them (after logging in) at the top of this post by clicking ‘Comment’.

Have a good week.       ……….  Tom  ……….