Special Risk Capital Management LLC

A Pause & Indecision December 24, 2020

Dec. 24, 2020 – I’m writing this about an hour before the close on Thursday (at 11:00 am EST) and the US markets are closed tomorrow, so it’s basically the end of the week. Wednesday saw a large volume spike likely driven by Trump’s refusal to sign a bill to fund the government and another to fund the second round of stimulus for COVID relieve. I try (hard) not to be political but . . . . really? Where the Hell has he been the last 4 weeks when all of this was being negotiated ! The “end” can not come soon enough, IMHO (I won’t get started on pardons, that’s another story).

That big spike on Wednesday and the very high volume bar (labeled “Activity”) had me worried that Supply was quickly coming into the markets. As of this morning, the market indexes are up modestly; so far no follow through. But in general the market breath is weak, mostly because of this rally is long in the tooth.

Last week I showed a chart of the S&P 500 and the average P/E ratios (price/earnings). I follow up on that with a chart of similar fundamental metrics.

The stocks in the index are divided into two groups, those with traditionally low P/E ratios (green) and those with high ratios (red). I’ve put in a dotted yellow line at the 50% level as a sort of bench mark. Now just because prices are high compared to earnings that doesn’t mean prices can’t go even higher, but we are in an over valued state which leaves the market open for disappointment. Bad news will do it. Any sign of a sustained slowing of the economy will bring a response from investors. I’m watch two areas: 1) Any excess tax selling (on increased volume) between now and the end of the year. 2) Post Christmas retail sales numbers (a direct sign of consumer spending & confidence). We won’t have to wait long for either one of these news bites; next week. The stage is set for reaction to news. Time for caution.

Here’s the table of Short Term Sector Strength –

Wishing all of my readers a very Happy Holiday Season ! Take (extra) Care. ………. Tom …………

Chart by MetaStock; table by High Growth Stock Investor