Special Risk Capital Management LLC

Summer Doldrums July 9, 2022

July 8, 2022 –  Since last week not a whole lot has changed.  My opinion is that we’re in a trading range that is building a base for the next significant move and that move could go either way.  Hence my reference to the Summer Doldrums (the “Doldrums” refers to the area in the Atlantic where the wind just stops blowing and sailing ships have to wait for a change in the weather).  The chart below shows my thinking going forward in that back-and-forth price structure (blue lines).

Why do I think not much is going to happen?  Well 3 questions (and opinions):

1. Is the FED showing signs of slowing interest rate increases?  A: No
2. Are there indications that inflation is under control?   A: No
3. Is the stock market (which anticipates change) trending up?   A: No

So, until at least two of these show signs of resolution . . . “not a, whole lota” is likely to change in a significant way.  Our next action point is coming on Wednesday with the release of the Consumer Price Index (CPI) numbers; an indication of inflation.  Slowing inflation will be a plus for this market, no doubt, but keep in mind that inflation is a worldwide issue not just in the USA.  A bunch more good news on that front over weeks will be needed to confirm a trend, it’s not going to “turn on a dime”.  If the economy really gets into a recession with negative GDP and increasing unemployment we could see another leg down, likely this Fall. 

I haven’t shown the pie chart of stocks in the S&P 1500 Index relative to their 20 day Bollinger Bands so that’s shown below.  We’re seeing more green and a lot of yellow and that supports the hypothesis of a possible base building phase.

And lastly the Short Term Sector Strength table –

Have a good week and watch how the market (thinks that the FED will) react to the CPI data.  It has the potential for a good indication of where we go over the next 4-6 weeks.   ……..  Tom  ………