Special Risk Capital Management LLC

A Slow Melt Upward March 16, 2013

I hope that you all had a good week.  As for the markets you’d think from the news media that it was a great week.  “Dow Hits New High”, “Most Consecutive Up Days Since 1950’s & 30’s”, etc. (que the chorus of “Happy Days Are Here Again”).  What always raises my attention is when the media draws people’s attention to the markets.  It usually is a contrarian indicator.  Just say’in.

Actually the Friday to Friday move by the broader NASDAQ Composite (shown below) was a very modest +0.14% (an annual rate of +7.57%).  You’d think that the markets were on fire; they have been since the beginning of the year.  A quick look at the market below:

OK, we’re still in an up trend and well within the boundaries of it (note trend lines and Support levels), but this week was really a pause.  Note the relative sideways move over the past week on narrow bars.  And a “Gee I Wonder Bar” on Friday.  Last Friday was a high volume (note red circle) narrow range bar that closed in the lower portion of the range  (Hummm).  Such a formation indicates to me that supply is coming into this market (i.e. sellers) and their shares are being absorbed by buyers (since the price did not bid upwards).  Now one bar does not a trend make, just a bar of caution.  (note: you can always click on a chart to enlarge it for easy viewing)

With the markets pausing I thought I’d do something different.  Let’s look at what has happened so far since the beginning of the year.  I call it “World Market Indexes, 2013, Year to Date”!   (clever)   🙂

I started all indexes at 0% on the closing value on 12/31/2012 and they progressed from that point.  The scale on the right is percent of change; note the 0% line toward the bottom.  Japan’s new economic policies have brought interest back to their markets, while China (the Hang Sen index) is lethargic at best.

Here’s how they have done so far this year: Japan: +20.83%,  US small cap:: +12.14%, S&P 500: +9.43%, NASDAQ: +7.60%, Europe: +5.67% and China: -0.55%.  You can see why folks are concerned about the economy in China and Europe, but that concern also brings potential opportunity ahead.  The U.S. market leader is the Small Capital index (Russell 2000) and shows the appetite for smaller, riskier stocks. 

IF this rates keeps up, the S&P 500 would gain over 56% this year.  Think that will happen?  Nope, me either.  The rest of this year will very likely be “dynamic” to say the least.  Note my comments in the post “Where’s the Risk” a few weeks ago.  As one trader put it “We’re closer to the top, than the bottom”.  Late comers should be very care full here.

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

chart courtesy of MetaStock & AmiBroker