Special Risk Capital Management LLC

Some Markets Recover – “Risk On” November 12, 2016

11-11-2016 – Wow what moves; volatility is back big time.  What this chart doesn’t show was the major down draft to near the June “Brexit” lows during the after market hours in the futures market.  By the time the US markets opened the drop was modest and it just took off higher after that.  One thing we do know is that volatility has returned with all of the geo-political uncertainty.  (What will the Donald do?)

In retrospect, looking at the market action on Monday & Tuesday (note the sudden gap higher) there was buying coming in before the election; obviously regardless of who would win.  I’ve labeled the chart with pessimistic / worse case Wyckoff labels in lower case with a “?”.  I typically do that trying to find contrarian price structures.  You don’t have to agree with them, they are just there to keep me grounded.  Indexes usually don’t have very good volume confirmation (IMHO) because they are averages of a wide range of stocks.  And the Supply / Demand “crispness” of price and volume is muddled via this averaging.

What is very interesting is that both very large cap and small cap stocks rallied (with the exception of tech), while the middle of the market was much more lethargic. in nature.  The Dow, S&P 500 and Russell 2000 (small cap) Indexes did well, but not so much with the NASDAQ Composite Index (above).

The pie chart below shows where the current strength is in the market:  (click to enlarge graphic)

Not a surprise that Banks and Financials did well with the anticipation of repealed regulations.  (Editorial: ‘What could possibly go wrong?”)

What is a split in market reaction is how the Emerging Market countries reacted; much lower.  In any case now we observe this market.  Do we continue higher and truly get a breakout, or fail and move lower?  The price bar and volume action will tell us.  Wide range bars with the High near the top are bullish, moderate to high volume will confirm it.  A series of narrow bars with high volume will concern me (selling coming into the market).  It remains at time to pick and choose your battles (stock candidates) and be careful.

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

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