Special Risk Capital Management LLC

Buy the Dip ? (or not) February 22, 2020

Feb. 21, 2020 – The S&P 500 lost 1.25% for the week, which is not very dramatic since it’s had such a terrific run up over the past 6 weeks.  The rate of increase is really not sustainable so this downward “correction” is not a surprise.  These “corrections” have typically been where buyers begin to step back in for the anticipated run higher.  At some point, this will not happen.  Then things get interesting in that, does panic set in or just a wait and see type of back and forth consolidation.  In the long term, earnings (or the hope of increased earnings) drive the market.  What effects the Corona Virus has on Chinese and World economic growth is still TBD, but market makers will anticipate the direction no matter which way it goes.

The 9493 level on the NASDAQ Composite Index (red line) is where some concern begins to get generated.  (click on chart to enlarge)  It is the low of a previous important up bar and it is at the low end of the price channel (purple lines).  The earnings guidance from some tech companies (like Apple) have been muted, and thus the growth rate is a cause of near term concern.  So far the volume has increased on down bars, but not to an alarming level.  Money Flow remains neutral and the Price Strength indicator has come off of a “Strong” level.  Time to be extra watchful next week.

No surprise that Gold & Silver have risen along with other more defensive sectors.  The ranking in this table is sensitive and short term, so it can turn quickly in either directions.  But in any case it may be time to take some money off the table.  As of Friday, I backed off to being 50% Long, and will put a hedge on early next week IF the weakness continues.

Like anything else, whatever went up quickly seems to fall back quickly. Time to be careful and nimble.   Have a good week.        ………. Tom  ………..

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