Special Risk Capital Management LLC

Year Ends with a Whimper December 31, 2016

Dec. 30, 2016 – First let me wish everyone a very Happy & Prosperous New Year.  With a new administration in the U.S., continued world geo-political issues and a stock market at / near all time highs, I’m sure that it will be dynamic.  May you always be on the “right side of the markets!”

The past 2 weeks have now proven to be a time of selling.  We can see that from the “Money Flow” indicator at the top (below the zero line).  The good news that it has been rather light.  We can see that in the “Volume Flow” indicator below (flat & has not crossed the red moving average).

I’ve spotted in a new reverse trend line (purple) and it coincides with the 5340 level of near term support.  While Sentiment is neutral, my other trend indicators (not shown) have recently put up the yellow flag of caution.  From Wyckoff analysis we know that the “CO” (a.k.a. smart money) will liquidate inventory over a period of time when the market remains strong to camouflage their activity.

Is this an Up thrust after Distribution?  On an index chart it’s hard to tell because indexes are averages of many stocks.  Also the light holiday volume makes it tough too.  My concern is what happens during the first week of 2017.  We could see significant tax selling as profits are booked early in the year and taxes delayed; maybe even lower.  For the past couple of weeks VERY few stocks have made it through my potential candidate filters.  A sign of weakening.  Right now I don’t see a significant rotation from one sector to another, at least not yet.

This could be just a pause with buyers sitting on the sidelines, and with the volume light, that’s the indication.  But let’s pay very close attention to the coming week (actually 4 days; US & most European markets closed on Monday).  I think a test to 5340 is now a given and if we don’t see buying coming in it could easily go down to 5250.  That would be the pre-elections lows.  Watch the spread of the price bars, the volume of those bars and what stock sectors are moving.

For those of you who want to see a performance review of major hedge & commodity operators, please click on the link below:  http://www.automated-trading-system.com/trend-following-wizards-november/ .  This data is through November, so not complete 2016 data, but you’ll see how the “big guys” have done this year (hint: not all that great).

Here’s an overall look at market strength using stocks in the S&P 1500 Index –

First, Price Strength:

Next, # in Accumulation or Distribution:

The pie chart below shows the sectors of stocks that have made my initial cut for buying candidates.  It also gives me an idea what sectors are strongest now by the number of stocks in those sectors.

As always, click on a graphic to enlarge it for easier viewing.

That’s it for 2016.  Watch the early 2017 movements.  It could start of with a bang.   …….  Tom  ……

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