Special Risk Capital Management LLC

Cautious & Skeptical May 7, 2016

May 6, 2016 – Well another interesting week, especially Friday.  Just when one would think that continued market weakness was inevitable we get a fairly strong day, and on top of poor jobless figures (back to “bad news is good’).  Surely the FED won’t raise interest rates now.  🙂  With low (government) interest rates all over the developed world it’s hard not to “put money where it’s treated best”.  Looking at the chart below I continue not to see a Distribution structure, but more a kin to a broad trading range that likely will lead to re-accumulation.  The question is how long will that take; and really no one knows.

My basket of market Sentiment indicators are “bearish”, trend lines have been broken and money flow is at best neutral.  I am cautious but skeptical that we are in for a significant top in this market.  Investors are nervous, so it would not take much for selling to increase and the market to fall substantially.  The major weakness is in the small cap index (Russell 2000) and the NASDAQ Composite (above).  Large cap tends to be hanging on (S&P 500 & Dow).  It looks like the period from April 11 to April 29 was a selling zone, both into and out of the rally.   From April 29 to current it just looks more like lack of demand.  I have a very short term trend line spotted in that will likely have to get redrawn later, but for now this market does have a “Change of Character” that began back in mid-February.  Caution !

The chart below shows the percent of stocks in the S&P 1500 Index that are in Accumulation, Neutral or Distribution.  Roughly half are doing OK (green).

Next the price strength of the S&P 1500 Index component stocks.

A reasonably even split, though price weakness gets the edge here.  Bottom line is not many indications of overbought or oversold currently.

The table below provides a shot of the short term (6 week) sector strength, and how they have progressed over the past 2 months.

(click on any graphic to enlarge it for easy viewing)

So that’s it for this week.  I’m letting weakness and stops reduce my stock holdings, and very skeptical about adding any right now, but let’s not too carried away by this weakness, at least for now.  Have a good week.           …………  Tom  ……………

price chart by MetaStock; pie chart & table by http://www.HighGrowthInvestor.com; used with permission