Special Risk Capital Management LLC

Building a Low Base May 7, 2022

May 6, 2022 – Quite a week.  The markets are showing their true color (as if we didn’t figure that out months ago).  Wednesday was FED announcement day and since there were no surprises (the ½% rise was expected) the market ripped higher.  Make no mistake; the rip was caused by short / hedge covering and computer algos.  The “big guys / gals were not taking positions.  The phrase “Buying begets Buying (& Selling begets Selling) was in full swing.   It didn’t last long.  The next day reality set in and we went right back to where it started.  Many are waiting to “Buy the Dips” . . .  this ain’t it!

Market bottoming is a messy process and it typically takes time when you have significant economic issues in the background that weren’t there before.  I am expecting a significant up and down volatile market through May with maybe (a key word) the re-accumulation of stocks and a base forming in the mid to late summer.  Europe is heading into recession, China is on lock down, supply chains are stretched, inflation, the war in Ukraine and there are signs that US consumers are delaying “wants, but don’t needs” items.

The chart below puts it in perspective with short term and long(er) term trend lines drawn in.  Also . . . for those still majorly invested . . . we’re now back to the level of December . . .  2021! 

Yes, I know the phrase “There’s always a Bull Market somewhere” and the sector table below indicates those areas, but right now . . .  the wind in not at our backs and one should be uber careful especially since many stocks in those strong sectors have already been bid up.  Any news would tip the apple cart.

I haven’t shown the number of stocks in the S&P 1500 Index that are above their 20 day moving averages, so I’ve added that below.

The strong stocks are in the strong sectors.  Tolling for unusual “opportunities” will be risky in this environment.  Well, that’s about it for now.  I’m lightly invested in defensive sectors/ stocks; there is “value”, but not much “growth” currently . . . “this too will change”.         ….  Tom  ….