Special Risk Capital Management LLC

COVID Concerns Return December 18, 2021

Dec. 17, 2021 – With the immediate focus off of the FED and a return to concerns about Covid, plus continuing debates about inflation, the market returned to showing weakness this week.  We’re back to the swing lows of 14931 on the NASDAQ Composite Index.  A break above 16626 would be bullish but that might not happen until we get past Christmas.  We sure could use some good news too.

Most of my indicators on the chart are negative and even “Price Strength” is barely positive.  Not a great environment for stock prospecting.  This is a shortened trading week and volume will drop off the closer we get to Christmas.  But be careful; low volume can be volatile.

After the New Year I’ll be making a few changes to this blog to improve content.  I’ve been working on some overall market strength signals plus I’m considering adding detail to sectors by showing specific ETF’s.  More to come.

The Short Term Sector Strength table is shown below –

That’s about it.  Wishing all that celebrate it a Merry Christmas.     ……….  Tom  ………..

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

Market Consolidation December 11, 2021

Dec. 10, 2021 – It sure looks like this market is in a consolidation phase.  We’ve gone through a period of weakness and bounced back a bit.  Overall, things don’t look that bad but the market is not convinced just yet . . .  and that’s OK.  The chart below shows that weakness and partial recovery with the market concerned about 3 things: Inflation, Covid and the Evergrande bond default.

The Evergrande default is all about a very large Chinese real estate developer who overbuilt and now can’t make the interest payments on its bonds / loans.  Concerns about it rippling through the Chinese, then Emerging Market economy is what it’s all about.  The Chinese government will (likely) not let that happens.  Next, Covid.  This remains a wild card but there are signs that it may not have an outsized effect on the economy.  It remains a genuine concern and requires our attention.

Lastly, inflation.  The sudden spike upward has caught many by surprise, but it’s really about the sudden surge in demand.  During the past 2 years businesses have throttled back due to lack of demand and a fear of recession.  That was real.  But now demand has quickly increased and the supply chain can’t turn on a dime.  The chart below shows the inflation rates over the past +60 years.  I’ve drawn a line across the current rate to see what happened at that inflation level.

The times of roughly equivalent inflation rates were the mid 1970’s and early 1980’s.  How did the markets hold up during that time and afterward?

In the big picture, market dips but nothing very dramatic.  Of note is that the previous peaks of inflation were preceded by high interest rates and excessive supply, but not excessive demand; a big difference.  This market has come a long way and quickly.  It’s overdue for a breather / consolidation of prices.  Unless Covid spikes up and threatens the economy, this spike of inflation is likely a passing thing.  Demand being greater than supply is very much an economic stimulate.  We’re not likely to slip into a recession, at least not yet.

Have a good week.   ………..   Tom  …………..

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

At The Point December 5, 2021

Dec. 3, 2021 –  At the close Friday we’re at / near an import support level, both from a previous price level and a few other technical prices levels (50 ma, Fibonacci, etc.).  The next couple of days are where we will find out whether the market stops and at least stabilizes or continues to show weakness.

The most obvious issue is the COVID Omicron strain and the Russian activity on the boarder of Ukraine. “A weak market will react badly to bad news while a strong market will ignore it.”  This market is overvalued and needs a breather even though we’re in a strong seasonal period.  If we can’t hold near this level the next line in the sand for support is the early October lows of 14182.  The VIX remains high indicating more Put buying than Call buying so traders are in full bore hedge mode buying protection.  The other concern is the FED.  Will they cut back (i.e. taper) the purchase of bonds and how much?  This market is addicted to cheap money, no doubt about it.

The pie chart of where the 1500 stocks in the S&P 1500 Index is shown above.  This relates to each stocks price position to its own Bollinger Band (20 day volatility bands).   Not surprising the amount of red, but weakness can also indicate future opportunity.

The short term sector strength table above shows strength in defensive sectors like Utilities, Materials, Financials and Consumer Staples.  Surprisingly Technology, especially Semiconductors, are holding up well.  Be on the lookout for retail sales and a few bell weather earnings reports coming out this week.  This news could influence the market direction in a significant way.

Have a good week & Happy Holidays.     ……….  Tom  ………..

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