Special Risk Capital Management LLC

Waiting for the Last Buyer to Get In . . . . January 18, 2013

What could possibly go wrong?  The markets are doing well world-wide . . . but “How long can this go on?  Lord I’m so tired!”  (apologies to a song whose lyrics I partially remember)

The wisdom of old traders: “When the last buyer has bought, then the market will go down.”  Now don’t get me wrong, this “overbought” condition could last for a while, but it will end.  And then it ends, how it ends, will tell us a lot about just how strong the underlying market really is.  Will it be just 3-5% or will it pack a whoop of +20%?  The volume since the first of the year has been very modest, there’s been no buying frenzy . . . do they have to lure a few more in?

Here’s what I’m concerned about:  The VIX (a measure of optimism / pessimism on near term options): very low, very over optimistic; Number of Stock Above their 40 & 200 day moving averages: at / near all time highs, very optimistic; Advance / Decline indicators: very optimistic; and (of course) the indicators below:

Price Strength pie chart above; a lot of green up there . . . very many of the S&P 1500 stocks are extended.

Money Flow pie chart above; same story, with many stocks in Accumulation mode right now.

So this could get ugly in a hurry if the market under pinnings are weak (which could be aggravated by a news item), or it could be mild.  It is very unusual for the trend to continue at this pace for much longer.  I am watching closely, especially market leaders, for signs of a reversal and tightening stops.  As the British would say: “Wait for It !”  Save those hard-won gains because any drop could be a great buying opportunity.

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

pie charts coursey of www.HighGrowthStock.com; used with permission