Special Risk Capital Management LLC

Two Steps Backwards & One Forward October 9, 2021

Oct. 8, 2021- The title sounds “bass ackwards” but that’s the point.  This time we’ve taken two steps backwards and we’re not anywhere near two steps forward.  Taking a look at the chart below, Sentiment, Dollar and Volume Flows and Price Strength are Bearish.  The Trend Channel is sloping down; not positive signs.  Take a look at the volume over the last 2-3 days during a “mild” rebound . . . very low, no commitment by traders.  Bottom line: it’s still a weak market.

Richard Wyckoff would call this a “change of character”; that is the market is not responding in the way that it used to recently.  There are many signs of this, so if you’re interested just “Google” it.  But here’s one of my favorites.  The chart below shows how the S&P 500 responded to selling pressure by touching the 50 day moving average, then rebounding and continuing the stair steps higher.

I’m not saying that we’re into a bear market or even a major correction, at least not yet, but traders are not rushing back into this market . . .  yet.  There are just too many issues challenging and too many unknowns for them to be comfortable.  Besides, third quarter earnings are just around the corner.  How companies report will be a big factor in how the market proceeds.  It is overvalued right now.  Two areas to look for are how Technology and Consumers Discretionary companies report and respond.  They were the previous market leaders.  Next comes Financials and Healthcare.  We need to regain leadership to move higher.

I’ve been raising some Cash, and if things get worse will raise some more.  But this could just be a pause and a re-accumulation phase.  Watch both bar strength and volume for clues.  Have a good week.  …  Tom  …

charts by MetaStock, table by http://www.HighGrowthStockInvestor. Used with permission.