Special Risk Capital Management LLC

The Stage Is Set for a Correction / Pause March 7, 2015

I’ve discussed how this market is “over bought” and needs to either pause or correct (lower) for a while and Friday could have been that tripping point.  Yes Friday was a down day and signaled Distribution but the volume was about average, so I don’t see panic selling by any means.  In the past this has been a buying opportunity, so let’s see how the markets react early next week.

The chart above shows a weakening “Money Flow” toward “Neutral” and the break of the red rising trend line, so clearly the go-go buying trend has paused in the near term.  A break (especially a close) below 4905 would confirm a pause / correction.  Right now it just looks like lack of demand / buying, so I’m not to concerned about a Distribution Structure, at least not yet.

I do point out that my “Market Sentiment” indictor has moved from Bullish to Neutral, which means that the 4 breath indicators that compose it are mixed.  Overall, I’d say this is a normal / healthy pause in the very aggressive up moved that we’ve had since early February.

OK then . . what is moving or strong?  I’m showing a different perspective on that question.  The pie chart below shows the number of stocks in sectors, that pass my “consider buying” scan.  (click on the graphic to enlarge for easy viewing)

Right now there are 86 stocks that have “buying potential” and the sectors that they are in is shown on the right.  We note that Biotech, Semiconductor and Retail – Discretionary are the top 3, in that they have the most number of stocks to consider (read counter clockwise around the pie).  This does not mean that one should buy stocks in these sectors indescreminatly, but they are the areas that generally have the most potential.  Individual analysis of each stock must follow.  Some of this activity is being driven by buy outs and mergers as well.  But generally is a good place to start prospecting, especially if / when the market cooperates.

Have a good week and watch a little more carefully next week for signs of strength or weakness . . . we’re at that point.   ……  Tom   …..

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