Special Risk Capital Management LLC

Upward, but expect Volatility February 13, 2021

Feb. 12, 2021 – First, a little “house keeping”. I’ve done weekly entries on this blog site for over 4 years, and to my knowledge, have not missed a week. New entries are made over each weekend and the date displayed at the beginning shows the most current data. Thus don’t expect comments during the week. The one possible exception would be IF I see a major change in my model during mid-week. In the case I’ll do a short post.

Next, I’ve made some changes to the weekly chart of the NASDAQ Composite Index (see below). The idea is to make it a little easier on the eye and easier to read. Just use common sense to interrupt it; arrows up are Bullish, down are Bearish, red is a Bearish color, Green is Bullish. The bottom line is we’re looking for a confluence or a propensity of indicators to show the same thing. A “one off” is just a warning to pay more attention. I’m happy to receive comments about what is helpful to readers.

Now back to the markets. Overall, I’d expect this year to be fairly good and positive. COVID will likely get under control and more people will start working and spending money (like normal) again. The markets see that likelihood by way of continued higher prices and a recovering economy. Add to that the possible increase in the minimum wage and that spells more expansion for the economy. Why? Because +70% of the U.S. economy is fueled by consumer spending. It’s simple. The more money consumers have, the more they spend thus creating demand/expansion. (Putting more money in the hands of the top 1-2% won’t make a difference; there’s only so much stuff an rich individual can buy. Just say’in.)

So the trend is up and higher but please remember that we can also expect a volatile market. The cause is speculation and right now there are a lot of people thinking the markets only go up. They don’t. Case in point is the amount of margin loans that are outstanding. This is fuel for a shake out.

Many don’t realize that then their stock holdings go down and they are on margin, they may be told about a “margin call” in their portfolio. That means come up with addition cash NOW to cover loses or the broker will automatically sell your stock. (And Yes, you have agreed to that; read the fine print.) This force or automatic selling drives weak prices even lower and quickly. But if the economy remains positive, it’s a great time to go bargain hunting. The moral is, be careful. Sometimes it’s not a good idea to react quickly to falling prices. Most recently the Game Stop fiasco. We’ll try hard to look for signs of a long term decline before severe damage sets in (a.k.a. intuitional / “smart money” liquidating near the “top”.)

Stocks in the S&P 1500 Price Strength:

About 60% are “green”, 30% Neutral and roughly 10% “red”. A pretty strong market.

Short Term Sector Strength:

So that’s about it for this week. Take Care & have a good week. ………… Tom ………..

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