Special Risk Capital Management LLC

A Very Volatile Week; Caution January 10, 2015

Last week was great for short term traders, they did very well with the sudden moves down, followed by an nearly equal rise.  All in all the NASDAQ Composite Index (chart below) was down about 1/2% for the week.  The S&P 500 a little more than that and the small cap Russell 2000 Index down over 1%.

This amount of sudden volatility / moves seems to indicate investors are nervous, and will sell on any hint of bad tidings.  And equally interesting is the willingness of other to step in and buy these “dips”.  All of this makes trend following difficult at best.  It is soooo easy to get whipsawed in this type of market.

There are indications that we’re not out of the woods just yet.  Note the Money Flow indicator which has recovered but remain negative.  This indicates the there was more selling on the down swing than buying on the up swing.  A low to modest volume on that up swing, followed by weakness in price (especially on increased volume) would indicate selling.  Wyckoff would call it a UTAD (Up Thrust After Distribution).  A violation of the previous low would be a key development.

Another item that supports caution are the number of stocks Above, Below or Close to there 20 day moving average (adjusted for price volatility).  Chart below.

So let’s be extra cautious next week.  Right now it looks like a mixed bag with many investors nervous.

I’m on the road next week, so the weekend posting will likely be later; probably on Sunday.  Have a good week.    …….  Tom  ……….