Special Risk Capital Management LLC

Anticipation January 14, 2017

Jan. 13, 2017 – I’ve been concerned about just how far this market could go for a while now.  My job is to be skeptical about rallys and watchful during declines.  I’m always looking for a potential trend change.  So far the up trend that started immediately after the U.S. elections has held up into the new year.

True to form my indicators shown above would agree that things look positive.  Money Flow and Volume Flow, as well as market Sentiment, are bullish.  Prices are above support levels and trend lines.  Looks pretty good.  So we are long this market.  But let’s look “under the hood”.

The chart above is of the Advancing vs. declining stocks in the (small cap) Russell 2000 Index.  Small cap stocks are considered to be more speculative, and therefore typically show signs of weakness before the more widely followed indexes.  Looking at the chart it appears that the A-D line is pretty much in-sync with the (gray) price line.  So far, so good.

The chart above is of the McClellan Summation Index.  I’m going to simplify this and call it the momentum of advancing vs. declining issues.  Note that the momentum (the rate of change) usually changes direction (goes red) before the market turns down (shown by the yellow arrows).  Conversely, it turns up before the market changes direction and rallys higher (shown by the teal arrows).

That brings us to the current status.  The summation index is trending lower.  Does that mean the market must head lower?  Not necessarily.  It shows that the advance – decline line is loosing momentum, so it is either in a flat / stable or potential down trend.  This is a “yellow flag” and tells us now is the time to be careful.

Here are some of the sectors of stocks that are on my “buy watch list”:

Not really any surprises here, as these have been strong for many weeks now.  I also am watching Latin America, Europe and Emerging Market sectors too.  A reminder: double click on any chart or graphic to enlarge them for easier viewing.

That’s it for now, have a good week.  …….. Tom  ……..

price chart by MetaStock, other charts by Worden Brothers / Tc2000; pie chart by http://www.HighgrowthStock.co. Used with permission.