Special Risk Capital Management LLC

Market Stalemate May 9, 2014

Not much new this week as the market (as measured by the NASDAQ Composite Index) took a 1.26% loss for the week.  The Large Cap segment (S&P 500) continues to hold up well with the Small Cap and broader markets relatively weak.  Tobacco, Transportation, Utilities, Real Estate and Energy (i.e. oil) performing the best out of all of the sectors.  These all sound like defensive sectors to me and the question is it Defensive, or a rotation toward Value instead of Growth?  Hard to really be definitive on the answer.

After looking at the chart it appears to me that the broad market remains in a trading range.  I note that rallies up are rather weak and on lower than average volume, while we see volume (supply) coming into the market during swings down.  Not exactly signs of strength, more like lack of demand during rally attempts.  (click on the chart to enlarge it) 

This is one of those rare times when Reverse Trend Lines don’t seem to provide us with a glimpse into the future, so I plotted a traditional T-L off the swing High’s.  Wow . . lower swing Highs, also not a very positive sign.  Next week let’s see if the NASDAQ can break that blue Trend Line with conviction and on (at least) average volume.  Then I’d like to see a break (re-test) lower (LPS) before a nice break out of the Trading Range.  OR . . . the market could just stay in this 4185 to 3990 range so awhile.

We’re approaching the Summer season, notorious for being a slow time of the year, and I’m not looking forward to that prospect at all!  The pie chart below supports the overall Neutral position of this market.

The percent of stocks in the S&P 1500 index are near evenly split between Strong, Neutral and Weak.  What’s an investor to do?  Be patient.  Now is not the time to be trying to make something happen.  I do have modest positions in some of the stronger sectors, but I’ll wait until I see clearer signs before jumping in with both feet.  This is frustrating for those of us that have done so well last year, but it should come as no surprise.  It was just toooo good to last.

Have a good week and Take Care.           ……………..  Tom  ……………

bar chart by MetaStock; pie chart by http://www.HighGrowthStock.com.  Used with permission.