Special Risk Capital Management LLC

OK . . . . but March 26, 2022

March 25, 2020 – A good week for the markets.  Up past my “mid-line” and every indicator on the chart below is positive / bullish.  But . . . Ukraine still holds over the market, as does inflation and “fear” of interest rates rising.  The market seems to say “OK, I’m feeling better, but not entirely well”.  Note the rather low volume, below the 20 day average . . .  no rushing to jump back in by institutions.

The big factor will be the upcoming corporate earnings reports.  If the majority can show modest growth then I think we’ll be “off to the races”, or at least firmly toward new highs.  How profitable companies are in this environment really says it all since skepticism abounds in the long term.  But employment is at an all-time high, interest rates are very low by historic measure and inflation was expected coming off the COVID lock downs.  Oh yes, COVID could be a wild card in the entire scheme of things.

So what to expect?  In short, the unexpected.  The war . . . who knows what Putin will do.  COVID . . . we’re in much better shape to deal with it now.   Inflation . . . slowly getting under control late in the year as supply chains improve.  Corporate earnings . . . pretty darn good, except for some pockets of poor.  I’m thinking that the next 2-5 years will be a stock / industry sector pickers market; everything will not be going higher at the same rate, nor at the same time.  Those days are behind us (I think).

How to handle this is via a “Top Down” analysis approach.  Starting with market health, then sector strength, then industry strength and lastly stocks in those industries.  More on this later.  For the time being here’s a look at the Short Term Sector Strength:

Note the rise Technology sectors.  Let’s see if that continues since they were beaten down so much.  (Note the “%Cl/52” column on the far right, that’s the % Close from the 52 week high price..)  So that’s it for now.  I’m cautiously taking position in those strong industries & sectors.

Have a good week.     …… Tom  …..

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

At The Turn ? (Patience Young Jedi) March 19, 2022

March 18,2022 – I see possible indications that we could be at a market turning point of this correction.  My major market model (not shown) is giving me a “heads up” to watch carefully next week.  But why?

First off this market has already priced in the major news issues in the short term.  The terrible situation in Ukraine, the FED interest hike and recent COVID uptick are known.  As long as the “unknown” doesn’t creep in or takes take an unexpected turn for the worse, we could be “OK”.  This is where patience comes in. 

Take a look at the chart above: broken channel up, Close above the “mid-line”, Volume & Money Flow Bullish, Price Strength (black line) Bullish. Time to pay attention, with care.

Friday I was hearing many knowledgeable amateur investors talk about a “follow through day” (a major up on high volume, off a major swing low formation).  Well yeah, that might be but that volume was due to the “triple witching” of stock & futures options and futures contracts.  Make no mistake: most of these contracts were hedges placed to protect portfolios in a down market.  That volume was contract settling, but were there any actual positions taken?  Let’s wait for confirmation next week before we assume anything.

How will we know?  I’d say watch the institutions.  If they think the worst might be over, they will be putting money to work where they can quickly and easily.  Read that as liquid big mega cap technology companies.  Is money flowing out of the fear stocks (metals, staples, defense, utilities, etc.) and into more speculatives?  I’d also keep an eye on the Russell 2000 index (IWM) for hints in comparison to other indexes.  Again . . .  patience, because it’s not all going to happen in a day or two.

The Short Term Sector table gives us some indication of that possible rotation –

That’s it for now.  ‘May the Momentum be with You’ Young Jedis.    Have a good week.  ……  Tom  …….

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

News Dominates the Markets March 12, 2022

March 11, 2022 – Needless to say (but I will) news continues to dominate the market and investor behavior.  The western world is in crisis with the near term future unknown.  An irrational authoritarian making irrational decisions that affects millions . . .  for absolutely no good reason.  Not a good environment for putting finds at risk.  For the week, S&P 500: -2.88%; NASDAQ “Q’s”: -3.82%; Dow Industrials: -1.99%; NASDAQ Composite: -3.53% and Bonds (corporate): -1.82%.

Looking backwards, let’s take a statistical look at market drawdowns / corrections.  A “mild” correction has generally been 10 to 15% drawdown off the previous high.  “Major” (i.e. recessionary) drawdowns are typically 25 to 45% off the highs.  Right now we’re at about 11 to 15% depending on which index you look at.  So . . .  for the time being we’re right at the edge of a “mild” correction.  A break below the 1300 level on the NASDAQ Composite could signal another possible leg down.  Conversely, at break (mulit-day) above the 13837 “mid line” may (just may) indicate a bottoming formation in the price structure.

On deck next week is the March meeting of the Federal Reserve, so watch for news coming out Wednesday afternoon.  Will they raise rates ¼% or ½% or not at all?  The market appears to have factored in at least a ¼% in March and perhaps another ¼% in May . . . but who knows?

There are some possible signs for the future.  First off Tech company insiders are buying their own stock.  Volatility is high and the Implied Volatility of options is at a near term high as expected.  This high of Implied Volatility can be an indication of an extreme in market pessimism (a fear index) so perhaps it is ‘darkest before the dawn’.  Overall, I’m looking for a bottoming / basing formation but fully aware that things could get worse as well; holding a big chunk in Cash.

The Short Term Sector Strength table –

(Note: for “Trend”, L=Long term, M=Medium term, S= Short term.  “A/D” is a ratio of Accumulation and Distribution. “%Cl/52 Hi” is the current % price off of the 52 week high.)

That ‘bout it for now.  Stay nimble but patient.  Have a good week.     ……….  Tom  …………

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