Special Risk Capital Management LLC

Market at the Top; Waiting Confirmation October 16, 2015

Generally a pretty good week for the markets, domestic and worldwide.  It seems as though the concerns about the slow growth in China have subsided even if the earnings reports from US corporations are mixed.  We are close to the previous high near 4905 but note that volume is rather light.

That’s OK for now but if we were to break decisively above 4905 I’d like to see volume / buying pressure increase.  Volume is the “fuel” to drive prices higher especially at this level.  A solid break above 4905, then a short retreat back, followed by a solid drive higher on volume would be a classic Wyckoff structure.  But equally possible is a bounce off of the 4905’ish level with a re-test of the previous lows.  We need to see a Sign of Strength (SOS) to provide some validation of a breakout.  That would be a wide range bar, with a Close near the High, on high volume (buyers rushing in).

My sentiment indicator remains Bullish and my A/D volume wave (red / green lines) are positive, though not showing “roaring strength”.  It certainly looks like there is a bunch of money out there waiting to see what happens next.  Sector strength has been in Semiconductors, Utilities, Real Estate and select Internet / Technology companies.  Gold Miners have been on a tear but now appear to be taking a rest; I’d hold off any new purchases for now.

Over all the stock components of the S&P 1500 Index (below) are fairly strong.

I am cautiously buying only small positions in strong sectors, waiting for a confirmation of a breakout.  Maybe next week . . . . or not.  This market likes to make the confident humble.

Have a good week.    ……….  Tom  ……….

price chart by MetaStock; pie chart by http://www.HighGrowthInvestor.com. Used with permission.