Special Risk Capital Management LLC

In The Trading Range As The Market Waits December 28, 2012

First off, may I wish all of my readers a very Happy New Year.  May 2013 bring you and your family Health and Happiness.

This post will be short since we had a shortened week and I’m involved with a research project and need finalize the overall project outline.  Last Friday I was thinking we could have a Last Point of Support (LPS) with a strong up bar on very high volume.  Supply was definitely coming into the market and the strong Close made me give pause.  Well, it did not happen.  From the chart below we note that the market last week closed below the Low of at bar (circled in red) and continued lower.

Bad news?  Well not really as we’ve just stayed within the trading range between 3045 at the top and 2965 at the bottom.  The market can’t make up its mind about where to go next so it enters a congestion phase.  The whole “fiscal cliff” political wrangling continues and that causes folks to try to figure out which way the next market move will go.  One hint is the pie chart below showing the number of stocks in the S&P 1500 index that are in stages of Accumulation (money flowing in, Distribution (money flowing out) and just Neutral.  It doesn’t look like very many are expecting “all Hell to break loose”, so I’d say the street is expecting some sort of resolution in a positive direction.

We’ve seen a fair amount of tax selling because people holding profitable stocks can (likely) pay lower taxes this year than next.  They eccentually “reset” their Capital Gains clock by selling now and buying back after the first of the year.  Also we may see some tax selling early next year to take advantage of stock loses against those (likely) higher taxes next year.  But . . . at this point no one really knows what (or if) any deal will happen.  And so it goes.

I should note that International stocks have been behaving well as of late, especially Japan and select Latin and European country ETF’s.  Something to investigate.  Have a good week.    …… Tom ……

charts courtesy of MetaStock and www.HighGrowthStock.com ; used with permission; click on chart to enlarge it.