Special Risk Capital Management LLC

Price Consolidation September 12, 2020

Sept. 11, 2020 – A quick look at the chart below of the broad NASDAQ Composite Index shows signs of price consolidation near the current levels. The dashed blue line is the near term support. If we drop (especially on the close) below this level we’re in for further weakness.

Yes, this chart is rather “Bearish” with all indicators indicating the same, but when I look at the “cause” of this sudden drop, I’m not so sure. The chart below shows the dramatic increase of small trader (less than 10 contracts) call option buying (light blue line; S&P 500 in black).

This certainly shows wild speculation and was likely driven by many people sitting at home due to the virus. (Nothing to do? Make lots of money trading options!) Funny how this fell apart days after Apple & Tesla split their stock, and . . SoftBank revealed that they had $ Billions in call options. The stage was set; everybody had “bought in”.. I’m thinking we’ll bounce around until next Friday (Sept. 18) when those call options expire. Then we may have an opportunity to reset and see just where we go from here. This sudden move was driven more by news and the market itself. An economic awakening may yet to occur and will likely happen over weeks and not days.

Sector Strength table below:

I remain heavy in Cash right now. Looking for the market to decide, and yes, it can go either way. Let’s see if these levels can hold and this market takes a “breather” perhaps into the election. Earnings will not be great, so folks will be cautious for a while.

Have a good week. …. Tom ….

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