Special Risk Capital Management LLC

October Swoon October 7, 2018

Oct. 5, 2018 – The “September Swoon” came a little late this year.  I guess they had to wait for the 3rd quarter to end and report, but this was not unexpected.  The only question was when.  The next question is “how far”.  I’m sticking with my 7700 target on the NASDAQ but also added the next level down at 7604.

What happens on Monday (10-8) will be a big indicator of where this market is headed.  I’d anticipate retail investors to sell on Monday morning; what happens after that will be key.  Do the “big guys” come in after the selling slows to buy the dip or do they also sell or just sit on their hands?  Friday was a average volume day closing off the lows after two high volume days on Wednesday & Thursday.  Indicating that in the short term perhaps the selling is over.  But that doesn’t mean buying will replace it.  The market can fall on low volume . . . . because nobody is buying (no one to hit the “ask”).

No surprise that all indicators on the chart above are bearish, but lets look at what lead up to this point.  For over a month now the price of the S&P 500 Index has been going higher, but the number of stocks making new highs has declined, while the number making new lows has increased.
This is just one of the many “market breath” indicators, but it does point out that the market index was being held up by fewer and fewer stocks; not a good sign.

Looking at the number of stocks in the very broad S&P 1500 Index we see a confirmation of that broad weakness.

# of Stocks in Accumulation / Distribution –# of Stocks in a Strong or Weak phase –There is a fair amount of red in both pie charts, maybe indicating that this time is different and “buying the dips” may have to wait a while.

Last thing I wanted to show is a price chart of Bitcoin, the Crypto currency.  These and other pseudo currencies have been the rage over the past year with hyperbolic rises and falls.  No judgement, just showing what can happen when everyone wants to jump aboard and then fade out.  Reminds me of the old J.P. Morgan comment that “when the barber and the shoeshine boy ask about buying, that’s a sign of a top”.
I am partially hedged as “insurance”; will add more or reduce as necessary.  Time to honor stops and trim out holdings that are weaker than the market.  That’s it for now, be careful out there.  ……  Tom  …..

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