Special Risk Capital Management LLC

Like a Hot Knife Thru Butter . . . March 9, 2013

The markets this week broke through resistance levels “like a hot knife through butter”.  Bam !

Note in the chart below of the NASDAQ Composite Index that the index gapped up and above the 3185 level and kept on going.  As you may recall I’ve been calling this a Re-Accumulation formation all along, tho I am labeling it as a possible Distribution formation.  Last week I talked about the difference between the two as they are hard to distinguish and “the markets” like to trick us.  That’s why we need all 3 characteristics to confirm.  (review: Distribution patterns must 1) break a trend line and 2) have a failed price swing and 3) show a major sign of weakness)

I moved the “UT(?)” label up to the current peak.  Why?  Well because I’m cautious, tho still near 100% invested.  The current peak still could be a UT (Up Thrust) which is Bearish and a major part of a Distribution pattern.  How will we know?  IF this peak is distribution then the peak will be due to ‘No Demand’ as evidence by narrow bars and low volume; but we need confirmation of that.  Confirmation would come quickly (in the next 2-5 days) in the form of wide-spread bars, on high volume, with the closing price at or near the bottom of the bar.  Then I’ll get worried; but only then.

I’ve also added a new secondary trend line in red, for the time being only as reference.  The table below shows the top half industry sectors (of a total of 68 sectors).  These are ranked via a composite over the previous 2 to 4 weeks based on price strength and Accumulation / Distribution metrics.  Ranking is via A thru E and color coded, %AD and %AD Velocity are from 0-100%.  This basically shows where the short-term strength is.

One thing not indicated is the International scene as it is improving slowly.  Japan is on fire (raging bull wise), Europe is showing improvement (tho economic issues remain) and Emerging markets are slowly improving.

Hope this helps make some sense of it all.  Have a good week.    ……..  Tom  ………

Chart by MetaStock; table by www.HighGrowthStock.com used with permission.