Special Risk Capital Management LLC

Markets Stabilizing February 18, 2018

Feb. 16, 2018 – We now are fairly sure what the cause of the recent market swoon.  An over bought market in the background, many people in the “safe” selling volatility trade (i.e. short the VIX).  Couple this with the end of the month ETF VIX contract “roll forward” and all it took was 3 days of weakness, followed by panic.  It happened quickly with a spike down and will (likely) recover with a “V” shape back up.  (Note chart below)

Since this market was over brought, it will take time to recover back to those levels.  My continued concern is the susptability to “bad news”.  While the Money & Volume Flow indicators are recovering, but not back to positive, my very short term Price Strength indicator is back to a modest plus / long status.  For this reason I’ve removed my hedges and will slowly look for high potential stocks to buy.  I am happy that I never fully exited this market.

We can also see just how well the market has recovered in a week from the pie chart below, which shows the percent of stocks in the S&P 1500 index that have Strong or Weak price structures.

That it for this week.  Be patient for the right stock and the right sector, but it looks like they will be coming to you.  Have a good week.      ……….  Tom  ……….