Special Risk Capital Management LLC

What Did The Market Know and When Did It Know It? October 19, 2013

Back at the “home office” and working on a large screen monitor feels so good.  🙂  Let’s take a look back over the past two weeks since the market moves have been dramatic.

I’m not a conspiracy theory guy but if you look at the market action and compare it to the news, you see a significant difference.

You’ll note the significant move down on Tuesday, Oct. 8 on some pretty high volume.  That alone should raise your antenna.  I contend that on Tuesday night a few phone calls went out to see just how committed the Republican leadership was to “jump off the cliff”.  By the next day (Wednesday, Oct. 9) the weak money as out and the smart money (who got confirmation that the cliff would not happen) set off buying the weakness.  After all, the 4th quarter has started and this was a major opportunity to finish the year with a little extra profit.  The next day a big gap up and off the market goes.  Now try to remember what the public was being told about the situation.  There was no confirmation until the afternoon of last Thursday (Friday was a gap up too); a difference of about a week and an “easy” 5% on the NASDAQ Composite Index.  Nice.

Two other observations on the chart above.  Notice that we’re getting very close to that upper purple channel line, an area where we’ve typically seen a pause or a retreat.  Just saying, we should not be surprised if the market slows down in here.  Also, notice the Money Flow (red histogram) chart above the price chart.   All during the last 2 weeks there was demand; no panic or even steady selling by the big guys.  Maybe the Market does know something that the TV talking heads don’t.

Next week we should find out just how strong this market really is.   Take Care and have a good week.      ………..  Tom  …………

(chart courtesy of MetaStock, used with permission)