Special Risk Capital Management LLC

In a Bit of a “Box” January 29, 2022

Jan 28, 2022 –  From the height of these daily bars last week we sure can see volatility, but we’re still in a “bit of a Box”, that is, a trading range / consolidation pattern.  Until we break out decisively no one is very certain about the next trend or the direction.  There is a case to be made for both

The chart remains Bearish and we’ve come down a fair amount and quickly:  42% of the NASDAQ Composite stocks have been cut in half, 70% of Healthcare stocks have been cut in half and 30% of all stocks are at 52 week lows.  Sounds terrible right?  Well . . . this can be a good place for a turn around with a quick up trend . . . it’s happened before and it’s not unusual.  Add to that support near the preverbal 200 day moving average too.  Could be a good launching pad for a move back up.

On the other side (Bearish), the yield curve on the 2 year and 10 year Treasury bonds has flattened (i.e the interest rate of the 2 Yr. increase more than the 10 Yr. last week).  Not a positive sign.  Add to that the Ukrainian situation, inflation and of course, Covid and there is way too much uncertainty out there.  And Wall Street does NOT like uncertainty (or things they can’t get inside information on).

So for the time being we’re in a box.  I’m looking for a break above 14182 to be more bullish or a break below 13002 to be Bearish.  BTW, the 13002 level on the NASDAQ goes way back to May 12, 2021.  Yeah . . .  I know.  Oh yes, I also note that volume is shallow, so it looks like a lot of waiting right now, few are willing to stick their necks out.

The Short Term Sector Strength table is shown below –

Right now I’m about 20% long and the longs I have are in the Energy and Value areas; growth and Technology have been clobbered.  

Have a good week and I think the key here is patience.   There’s no sense in fighting to get out of the Box right now. …………….. Tom ………………..

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

Welcome to Volatility . . . We’re There Now January 22, 2022

Jan. 21, 2022 – I was expecting volatility but wow, this was a quick flush down.  It looks like just to many things started to pile up: FED raising interest rates, Ukraine conflict, earnings disappointments (i.e. Netflix, Peleton) and of course an overvalued market.  Add to this options expiration on Friday (where the most people “need to be” wrong).  But, right now, this looks like a typical correction pattern and not a major market peaking pattern.  But that could change.

The chart says it all.  There is a lot of red there.  So now what?  Monday will likely be a flush out of the remaining sells that found out about this over the weekend.  Then two possible scenarios:  Monday afternoon or Tuesday, a recovery / relieve bounce back up to around 14533.  This could take a couple of days. 

1. Then a pause then recovery to higher ground, forming a consolidation pattern before a move higher.
2. A bounce up to around 14533 on light volume (no demand), with a final “scare the pants off” drop lower maybe even near the 1300 level (that would be bad).  This could happen quickly with news of a Ukraine invasion.

But let’s keep things in perspective.  The average drawdown in a “normal market” (i.e. between 1989 and 1999) is about 10%; we are there now.  Also, a drop to around the 200 day moving average is also “typical”; see chart below . . .  we’re there now.

This is a chart of the weekly S&P 500.  That gives us some perspective.  But make no mistake.  Holding the line here is Bullish, a flush through is Bearish.  With the overall economy is pretty good shape, I’m thinking this is just a normal correction and perhaps a buying opportunity.  We’ll  see, and it won’t take long.

The Short Term Sector Strength table is shown below; FYI.

This market is oversold in the near term.  The big question is will buyers come back to snap up bargains at lower prices?   Have a good week & Take Care.         …….  Tom  ……

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

Should I Go or Should I Stay ? January 15, 2022

Jan. 14, 2022 –Apologies to pop culture but if anyone is saying that they got this market figured out, run, don’t walk away from them.  Consolidating price formations are not easy to figure out and they really shouldn’t be.  Right now there is a case to be made for Bearish and Bullish, but for, now neither is that terribly clear.

I remain in the camp that says price action is in a consolidating trading range.  Yes, the NASDAQ Composite Index did close below my 14860 support level but then pop right up above it on Friday.  Also I note that larger volumes are coming in on up bars like on Monday of this week.  (“buying the dips”?)

So what to do in this situation?   I rotate out of weakness (Technology & Growth) toward what’s doing better (strength).  That would be Energy and Financials / Banks.  South American sectors are showing early signs of a rebound too.

Things to keep in mind:  Fourth quarter earnings are starting and the ongoing Covid and Ukrainian situations.  Inflation is a ‘pesto issue’ IMHO because did anyone really think that interest rates could stay this low, for this long without increasing?  Prices will be going up, but likely not as much as the current rate of increase.  The Fed’s mandate of full employment has been met; next step is to keep inflation to around 2%.  Since we’ve been increasing at a 7% rate that means increasing rates to slow things down.   Hence Energy and Financials like that environment.

I’m about 75% invested and watching for some news item to throw a monkey wrench into this equilibrium.  There are a lot of moving parts out there and the investors are not sure if they should go, or stay.   Have a good week.         ………..  Tom  …………

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

Flirting with a Bottom January 8, 2022

Jan. 7, 2022 – This report will be short and to the point since I’ve got a lot of things going on.  To start with let’s look at the market overall; chart below.  Market Sentiment = Bearish, Money and Volume Flow = Bearish and Price Strength is Weak.  Overall not a good environment for investing.

But as I look to the volume bars at the bottom I see that volume has been dropping off over the past 3 days.  To me this indicates selling is also dropping off and we now have to consider “No Demand” (i.e. no appetite for buying) right now.  As the market flirts with touching the previous low near the 14860 level there are 3 scenarios:

1.  Investors getting concerned even more and we drop below the Support level.
2. We enter a trading range where prices consolidate for a few weeks; zig-zag.
3. The market bounces off the Support level forming a triple bottom pattern and heads back higher.

My preference at this time is scenario #2, a consolidation pattern.  This will give the market time to sort out Covid, geo & domestic politics and the upcoming earnings for the 4^th quarter.  I can’t help thinking that a good chunk of this selling right after the first of the year was related to taxes.  Sell & book those profits and reload while delaying long term gains for 12 more months.  Just a feeling, especially with how well the markets have done over the past 12-24 months.

The Short Term Sector Strength table is shown below.  What got me here was that Technology is at the bottom.  OK in the short term but not so much in the long term. (note ‘Bear’ Treasury bonds are inverse to the bond)

I’m keeping a close eye on the 14860 level on the NASDAQ Composite Index.  That has shown support twice before & that’s important.  Have a Good Week.   ………  Tom  ……….

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

The Year in Review January 2, 2022

Dec. 31, 2021 – First off . .  Happy New Year !  Since this was a very low volume and shortened trading week I’ll suspend my normal market comments this week and go right to the chart of the NASDAQ Composite Index.

The indicators and price action are looking better but we need to break and close above the 15901 resistance level soon.  Then of course go on to challenge the previous high.  The next 2 weeks will give us an idea if a new bullish trend is beginning or we we’re just falling back into congestion.  Stay tuned. 

The next chart is a relative strength chart of key international indexes for 2021.  (all start at the same 0% point on December 31, 2020; chart courtesy of StockCharts.com, used with permission)

Now for all of those trading Crypto I decided not to put that on the chart (i.e. ETF GBTC).  The reason is that it was EXTREMELY volatile.  Case in point: starting 12/31/20 at 0%, at peak for the year of +77% on 2/19/21, then -25% for the year on 7/20/21, then back up to +67% for the year on 11/9/21, before finishing at +7% for the entire year overall.  I dare say that the daily volatility in between was exceptional too.  If one trades crypto, one must be exceptionally nimble and have a plan.   (i.e. sure sounds like “day trading” to me . . . . not my style at all)

About the only thing that I can say is that 2022 will likely not be the same as 2021.  I am expecting more volatility in the stock market.  Wishing you success and Good Health in 2022.  ……..  Tom …….