Special Risk Capital Management LLC

Lack of Demand – Shaky Market October 14, 2016

Oct. 14, 2016 –  OK, it’s good to be back to normal after the hurricane evacuation.  The news is not much has changed, or has it?  Price wise maybe not much but the internals of this market have grown weaker.

Note on the chart above the Money Flow and Volume Flow have turned lower.  This indicates that although the daily trading volume is average to slightly light, that volume is on down or weakening bars.  Since the volume is rather light, I’d call it a “lack of demand” for stocks.  Market Sentiment continues to be Bearish.

We’ve broken the range low of 5250 (gray line) and the next significant price support level is around 5108 on the NASDAQ.  A move down to that level would not be unusual and I think a lot of the potential revolves around the 3rd quarter earnings reports which kick into high gear next week.  Watch the banks reporting (4 on Monday); they could be a catalyst for a move.

Looking at the broad S&P 1500 stocks we see similar weakness.  Below is the portion of those stocks as far as price strength is concerned.

Over half are well below their 20 day moving average (red).  Next looking at Accumulation (buying) & Distribution (selling) strength.

Many more stocks in a Distribution phase right now (red).  So this is a time for caution and as the saying goes “dance near the exit”.  Another option is to “hedge out” any long positions with a short and go synthetic “cash neutral” with an off setting bear instrument.  I consider “bear” ETF’s & funds to be basically insurance, insurance against a sudden drop in the market.  (the gains in one offset the loses of the other)  They are easy to put on and take off quickly.

In any case I’ve lighten my longs in here and don’t see very many compelling stocks to buy right now.  Let’s see how the early part of the week plays out.  If we see wide range down bars on high volume that would be very Bearish; otherwise we could be in for just a lack of buyers.

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

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