Special Risk Capital Management LLC

Quad Bottom with All Eyes on the FED April 29, 2022

April 29, 2022 – Just when you thought it couldn’t get worse . . . along came earnings. Apple was OK (at best) as well as FaceBook, but Google was poor with Amazon and NetFlix being actually bad. All eyes will be on the FED news conference on Wednesday afternoon. Not so much as the anticipated ½% rise in FED funds rates, but the prognostication for the future. China supply chain issues, the Ukraine war and inflation worries continue. Add to that the US dollar being very strong (that hurts exports) and the Yen and Euro being weak; things are out of balance. All chart indicators are bearish.

What we’re seeing here is a market where the “big money” is heavily hedged via futures and put options. The short term pops are basically short / hedge covering and then are being sold back down. Not too much is doing well right now. Even oil and commodities are running into upper level resistance . . . fears of a recession will do that.

The Short Term Sector Strength table is shown below –

Not much to like in the sector analysis table. Heck, even China popped when the government said it would support all industries, even on-line and tech. Are we getting a little desperate?

Have a good week. ……….. Tom ………….

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

Triple Bottom ? April 23, 2022

April 22, 2022 – A rough week for the market, especially after FED and European economic news came out late in the week; a “double whammy” so to speak.  The market is expecting and discounting a ½% increase in the FED funds rates at the May 3-4 meeting.  But now there is talk about a ¾% and or multiple ½% increases over the rest of the year.  The markets LOVE cheap money and that is drying up folks, and it’s not temporary.

Back to 12555 on the NASDAQ?  It’s not that far away.  Note the low volume which equates to low commitment by investors. Few see a need to step in and buy as others are selling.  Netflix got shellacked with loosing subscribers; trouble in the streaming industry.  Tesla beat revenue forecasts and so far a mixed bag. The earnings season continues over the next 3 weeks and all eyes on are forecasts for the rest of this year.  Concerns about added expenses and supply chains continue; worries about profits being squeezed.  Add to that housing starting to cool, loan interest rates rising and general recession fears.

No surprise that the Short Term Sector Rotation table shows a continued move toward playing defense.

Likely addition selling on Monday morning, but how this market reacts after that will be important.  Do buyers step in at pick up bargains or just continue to “sit on their hands”?  Have a good week.  ..  Tom ..

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

Waiting for News, Either Good or Bad April 17, 2022

April 14, 2022 – This was a shortened holiday week due to Good Friday and activity (volume) was light, but has been falling off for a few weeks anyway.  Likely cause is four big weeks coming up on first quarter earnings plus concerns about the push of Russia restarting in Ukraine.  The environment is unstable, hence low volume and little commitment by traders.  The earnings forecasts by corporate America will have a big influence on where the market goes from here . . .  and it could go either way.  We’re kind of at a point where a little news could have a big effect.

Note in the chart above of the NASDAQ Composite Index is in a bearish condition.  Not exactly a good time to deploy any funds into the market.  I’m holding off until there are some better signs of “good health”.  Interestingly, “seasonality” is positive for the next couple of months, but I doubt if that will have an over powering effect on this market.  News & earnings “trump” seasonality IMHO.

The Short Term Sector table below shows what’s doing best right now.  No surprise that defensive sectors are at the top.  I do have positions in those sectors, but also in Cash.

And so we wait for earnings and Putin over the next 3-4 weeks.  It may be a “nail biter”; we could use some good news for a change.  Have a good week.   …………  Tom  …………..

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

It’s All About Earnings & The FED April 9, 2022

April 8, 2022 – I get asked “Why isn’t the stock market recovering (fast)?  Must be (fill in the blank, usually political)!”  Actually it’s all about earnings (a.k.a. profit), now and in the future.

The market likes constant / stability.  Stable good or bad is OK as long as “they” (investors) can evaluate what it is and what it affects in the market.  Thus money rotates were it will do best in the future; or at least everyone’s best guess of the future.  With unemployment low and the economy on fire why aren’t we roaring to all-time highs?  The unknown is the answer, and that’s what makes Wall Street very uncomfortable.  So much so that the big guys / gals buy Put options and Futures to hedge (protect) their portfolios.  These instruments have expiration dates and must be “unwound” before those dates.  That means volatility during the settling process.  Then the question is will that protection be renewed / rollover again.  Make no mistake about it, options and futures activity does affect the stock market.  And big pension portfolios & mutual funds need a lot of these to offset their holdings; billions in short order.

Now getting back to market concerns and future corporate earnings.  Companies big and small are faced with a rapid increases in demand and a limited supply.  “Happy days are here again” style demand came very quickly via Covid case drop offs, that with many having added savings in the bank created demand, a.k.a. “Back to Normal”.  But companies have limited supplies.  They are faced with limited labor, higher wage demands, supply chain issues and higher costs.  With inflation concerns by the consumer being an issue, can they raise prices or absorb these problems without affecting profits?

I’m thinking that the FEDs policy on May 4 could be a significant event.  The markets have priced in interest rates rising, but how much and how fast?  The bigger issue is under the surface, and that is liquidly.  The FED has purchase soooo much public and private debt that it intends to sell (or retire) back into the markets.  How fast that happens will definitely affect liquidity in the capital markets.  Note the sudden spikes in the FED balance sheet chart below. 

There is a lot of money / capital up in that chart that the FED intends to deal with to fight inflation.  Just how they go about doing it is a key factor for the future.  I don’t know and the markets don’t know either; “unknown”.  Liquidity,  the availability of capital, is the life blood of a capitalistic economy and  that’s why this matters.  That’s the reason why the next FED meeting and the current corporate earnings projections will be important.  Current earnings should be “OK” but the forecast of earnings will be something that everyone on Wall Street will be closely watching.

What next?  The war in Ukraine is terrible, but basically a “known”.  COVID is rising is some areas, but now we have therapeutics; “a known”.  Domestic politics continue; “a known”.   Back to the “unknown”.  I think corporate earnings / profits will be OK to good this quarter.  The markets will like that short term.  Thus a possible scenario would be a rise toward the previous high (though not making it) into the May 4 FED meeting.  Then my feeling is it could drop back to test the previous lows.  And many will be surprised and left holding “the bag” near the top. In the mean time we have to trade the chart in front of us and look at it with an open and unbiased mind (difficult!).   The table below shows what is happening in the Short Term with sector rotation.

Well . . .  that’s my big picture forecast for now.  Have a good week.           ………  Tom  ………..

table by High Growth Stock Investor, used with permission.

Strong but A Little Tired April 2, 2022

April 1, 2022 –  This market is showing significant strength based on many indicators but the one the stands out the most is the McClellan Oscillator which measure market breath.  No doubt about it, more stocks are advancing than declining and thus money is flowing back in, but likely at a cautious rate.  Note the low volume on the chart below.  It appears that a good bit of the recent strength was generated by the “unwinding” of put options that were placed as a hedge during the correction.  That’s behind us now.

So the question is whether this market can continue higher.  I’m thinking that it is due for a small dip down or at least a base building period before moving significantly higher.  First quarter earnings are in front of us so that could provide a spark . .  or disappointment.  Of course the wild cards in any market move is the unknown . .  that being Ukraine and COVID.  I don’t think the interest rates or inflation bothers investors very much; they were generally expected.

The Short Term Sector Strength table is shown below –

I see that Utilities and Real Estate are higher that Financials and Technology.  Not exactly a sign of confidence in the growth area right now.  This move may take a while and be rather selective in nature unlike the previous 2 years where just about everything did pretty darn well.

I’m about 70% invested right now and looking for more opportunity but I’m not in a big hurry.  Have a good week.        ………..  Tom  ………..

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