Special Risk Capital Management LLC

A Slow Recovery . . . (?) September 25, 2021

Sept. 24, 2021 – Last Monday the bottom feel out and the NASDAQ Composite Index (chart below) dropped below my first level of Support at 14896. My general rule is to use the low of the bar that closes below that first level of support as my guide to hedge / close positions going forward . . . unless the volume of that day is very high (folks rushing toward the exit). This drop has been generally expected for weeks now and all it took was for the Chinese real estate developer Evergrande to rumor a series of loan defaults. That “lit the fuse”. But notice that the volume was not excessive, a little above average (dashed blue line) but not up into the red line (average + 30%). In short, “orderly”.

At this time this just looks like a slow recovery, but make no mistake, this IS a different market than the previous 9 months.

I came across an interesting presentation. Here’s the short of it. The US economy is made up of 74% consumer spending activity. This drives the potential for corporate profits; i.e. spending = profits. Next, who (& what) drives spending? Well the segment that has the highest income and needs / desires. That age segment are those between the ages of 35 and 55; the ages where they have the most income & needs. Right now we’re seeing the biggest population / age segment are the Millennials. They are the ones currently between ages 35 and 55. The bottom line is their consumption / spending will continue through the year 2034 (roughly). The theory is that the behavior of those between 35 and 55 . . and if that segment is large enough, will drive a secular Bull market.

Now, that does not mean or even imply that there will not be volatile corrections that are significant. It only implies a recovery from a short term drawdown in the markets. OK, it’s an interesting theory and only a theory. Back to “what’s happening”.

Let’s look at manufacturing as a gage of this economy. The chart below shows recovery; it’s not a straight line but it never has been either.

I guess one could say, “so far, so good”, even with that recent dip lower. Likely driven by supply and semiconductor shortages and not by lack of demand. (my Thanks to Doug Short & Advisor Perspectives for this chart)

The Short Term Sector Strength table below shows the initial recovery of Technology sectors late last week. That must continue plus adding Financials and Small Caps would be a big plus too.

That’s about it for this week. Continue to Take Care and keep an open mind on what this market is telling you. ………… Tom ………….

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