Special Risk Capital Management LLC

A Weak Market Driven by News March 25, 2018

March 23, 2018 – The old saying “A weak market reacts to bad news, while a strong market ignores it.”, holds true again.  This is not the same “go-go” market that ended in early February.  Reality is setting in, and the market is not happy with all of the unknowns that are floating around.  The reactions on Thursday and Friday of last week showed that investors prefer to “sell and ask questions later”; and they did.

Now, a good portion of those drops were driven my computer algos, which eccentrically “dog pile” on top of any move.  But someone had to get the direction down started.  The rest was amplified.

Our support levels (red & blue) were blown through.  OK, now what?  A possible scenario would be for the market to drop to around the 6880 level (my projected “spring area”) before finding a base.  IF this bullish price structure is to hold, it would then have to stabilize and go higher, at least bad into the “long term channel”.  IF the 6880 level is broken solidly on a close, I’m concerned that increased selling will enter into the market.  I note that the Volume & Money Flow indicators turned negative early last week.  Market Sentiment is now bearish as well.

Here’s a bit longer term view of the damage as indicated by the stock in the S&P 1500 Index:

Price Strength (above) is certainly negative.

And we see that selling (Distribution) has entered the market.

At this point I’ve “hedged” my positions by buying a “Bear Market” fund; one that goes up when the market goes down.  I’m using the NASDAQ 100 Index as my proxy for “The Market”, but the Dow or S&P 500 should work equally as well.  I’m watching that 6880 level and how my stocks are reacting vs. the market.  Selling the weak ones (selectively) won’t hurt; it’s nice to have cash at a market low.

Have a good week and be careful.       ………. Tom ……….