Special Risk Capital Management LLC

Interest Rate Freak-Out February 27, 2021

Feb 26, 2021 – A rough week for the stock markets (worldwide). We knew that stocks were over valued and we knew that (in the USA) many accounts were over leveraged using Call options and margin (borrowed money), so the stage was set for a quick “dump”. And we got it. The catalyst was the rather quick jump in the 10 year Treasury Bond rates. Going up over 1/2% in a week is a lot in that short a time. Many read this as “inflation ahead !”, so they got out.

The question is are we done yet. I’m thinking that we are, or very close. Two things: 1) The number of new lows in the stock market is higher, but not that or very high. 2) The volume (note chart below) was very low late in the week. Activity is drying up; not much buying but not much selling either. Monday morning may see a bunch of selling as weekend investors note the drop in prices, especially in Technology and Growth stocks. In the afternoon or Tuesday, we may (just may) start to see some bargain hunting buying coming in. The key thing is to “Wait for it”. Volume will confirm price in this case. Otherwise, we will likely be in for some back and forth price movement that really doesn’t go much of anywhere.

We’re very near a key support level of 12985, so next week will be important for where the markets may head off to next. We can see in the table below the short term sector strength:

Note at the top of the list the inverse / Bearish Treasury fund and where some of the Tech sectors ended up at. I highlighted the 5 & 10 day return column and for comparison to the 15 and 21 day columns. Just by colors you can see how things have changed over the past month.

I have taken the opportunity to close out some lagging positions and am about 40-50% invested now. Next week that amount will likely change either up or down as the down trend is either confirmed or rebuked by investors. But interestingly I have not put a hedge on just let; close, but not quite there yet.

Have a good week. ………. Tom ……….

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