Special Risk Capital Management LLC

Now Is Time For Caution September 20, 2013

As the lyrics in the song “A Bad Moon Rising” . . . . . “I see Trouble On The Way.  Looks Like We’re In For Nasty Weather”.  Well, that could be, and here are the reasons:  1.  We’re getting very close to the top of the (purple) trend channel that goes back to November, 2012; and we may just fall shy of hitting it, not a healthy sign.  2.  Look at the volume yesterday and today (Friday) circled in green.  Increasing but the bar spread (distance from the High to the Low price) is small & compressed.  Translation: all the buying is being met with selling, supply is coming into the market, not a good sign, possible Buying Climax.  3.  Lastly, my stocks scans are weak, in that there was only one possible buy candidate tonight.  Unusual & not healthy.

So what is an investor to do?  Well two days does not a trend make, so we get real cautious in here, honor our stops and watch for additional signs of Distribution (selling).  Now this could be just a couple of days affair.  Folks are nervous about a government shut down, interest rates, et al, so I would not over react.  But it would not surprise me to see a correction to around the 3650 level (lower blue line) . . . something short and violent just to scare the Hell out of everyone . . . . and give the “smart money crowd” a chance to reload what they have been selling.

Also I keep in the back of my mind that we’re nearing the end of the (reporting) quarter.  I know many managers have not been in this market and their performance has suffered.  (Didn’t you know?  September is always “bad”; not true!)   A “nice drop” right before the end of the month would bail them out, plus give them a re-entry opportunity.  I’m not cynical, that’s just how some of these folks make money.

So be extra watchful next week.  Watch the bar spread and the volume, a big spread with a weak close on heavy volume will confirm my suspicions.  I hope I’m wrong, but I won’t wait very long to find out.  I’ve got some nice profits this quarter and I don’t want them to slip away.

Take care and have a (very) good week.               …………….  Tom  …………..