Special Risk Capital Management LLC

Up Trend Pausing December 12, 2020

Dec. 11, 2020 – Things have been going fairly well recently, but Wednesday the market stalled. This could be just a pause or something worse so let’s keep an eye on it. As shown on the chart below we’re bouncing near the first level of support at 12217 on the NASDAQ Composite Index. Volume is light so it appears to more of a “lack of buyers” than significant selling. The indicators remain positive.

What the cause of this slow down is immaterial but likely the stalling of the stimulus talks in Congress and the continued Trump tirade (yes tirade, because enough is enough !). Brexit is looming on the international front as well. Were we stand from an evaluation perspective is a major underlying concern too. This market is not cheap. Looking at the Price to Earnings ratios below points this out clearly. This market is priced to perform and if earnings disappoint there will be some form of reckoning.

We are well above the high 20’s / low 30’s in the P/E ratio where long term investors begin to take note an buying can retreat. If there are fewer buyers than sellers, well the prices fall. Pretty straight forward. Again, this is not calling a top, but I do like to keep the overall market in perspective.

The table below shows short term sector strength. I’ve added a few columns to show what prices have done over the past 5, 10, 15 and 21 days. This adds to understanding trends.

The good news is that Small Cap and Mid Cap sectors are leading. That typically shows optimism for future gains. I remain “long” and try to focus on the strength in the market, but I like to look over my shoulder every so often. Thats about it for now. Have a good week. ……….. Tom ………..

chart by MetaStock, table by High Growth Stock Investor, P/E table by Doug Short / Advisor Perspectives; used with permission