Special Risk Capital Management LLC

Market Feels “Better” February 13, 2016

OK, we’re still close to the August lows and the market gapped down on Monday, but the is starting to “feel” different.  Money flow is weak / Neutral and Sentiment remains Bearish, plus that red trend line above us needs to be broken.  Why is this market beginning to feel different?

Well of one thing money appears to be flowing out of Utilities and government bonds.  Not a whole lot let, but it is a start.  This is important because these are defensive positions.

Next thing is price pausing near the August low of 4292.  Volume has NOT picked up appreciably on up bars, so this could be just a pause in the down movement, but I don’t get that confirmed by the McClellan Summation Index (of advancing to declining issues).  Also it looks like the number of S&P 1500 index stocks that are in Accumulation are about equal to the number in Distribution. (pie chart below)

Not much Neutral / yellow in that chart.  Next looking at price strength (below) just appears to show (at least) an improving market.

There is much to do before a new up trend is confirmed, but we’re at the point of starting to consider the possibility of one.  What we need is a few wide range bars with closes at the highs and accompanying high volume.  This would indicate buyers stepping back into the market.  That may take a week or more to really develop, since a nice price structure would be a minor retreat on light volume (LPS).  Next I’d like to see what sectors are attracting the buying.  Is it the previous leaders or new ones?

In summary, we need to be careful and not rush to any conclusions.  This could be just a pause in a down turn (so far), or maybe the start of a base building process with the “smart money slowing accumulation positions.  As always, news is a wild card and impossible to predict.  I sense that folks are still nervous out there.  Monday is a market holiday in the US, but watch Asia and Europe for clues on Monday.

Have a good week.        ………….  Tom  ………….