Special Risk Capital Management LLC

Off We Go ? January 7, 2023

January 6, 2023  The US Markets had a pretty good week, up about 1 ½%, with most of that coming on Friday.  Once the Labor report came out we were off to the races.  The US Dollar dropped like a rock (bullish for stocks) and the Treasury Bonds rocketed higher (lower rates; bullish).  Add to that added volume of traders covering short positions due to the higher hedging in the markets. 

click / double click on chart to enlarge it

The broad NASDAQ Composite Index (shown) has really been in a wide trading range since mid-September.  A short term traders dream but not for longer term investor that are anticipating a change in the market trend.  This market is waiting for two things: a positive / Bullish FED announcement (which many are trying to anticipate and front run) and 4^th quarter earnings.  As the economy slows the effects on earnings become more of a factor.  In the long run, corporate earnings drive stock prices.

The table below shows the reporting dates for key corporate stocks that could drive the market in one direction or the other.

The Short Term Sector Strength table is shown below –

So I’m looking for continued signs of a follow through from Friday before contemplating dipping my toe into the market.  The sector strength table does not exactly support a “risk on” market, so I’m skeptical right now.  Have a good week and a very Happy & Prosperous New Year.    ……  Tom  ……

The Year in Graphic Form . . . Down ! December 31, 2022

December 30, 2022 –  This was a low volume week that Santa Clause decide to skip (ref. “The Santa Clause Rally” Effect).  The chart below is the NASDAQ Composite Index on a weekly basis.  We remain in a down trend.  So . . .  IF one must buy stocks, I would recommend only in select, strong sectors and hold them for a short period of time on a short leach.  This is NOT a Bull market.  There is no reason to “buy & hold” or to be patient.

I am expecting a small / modest rally after the first of the year, likely running into mid-January, then another leg lower.  Why?  Because earnings from the 4^th quarter 2022 will be reporting and they will very likely show muted results.  Of course, I could be wrong, but if you think about it, it’s a rather logical expectation.  In the meantime, inflation (maybe) slowing but still high, interest rates are increasing, Ukraine remains a “wild card” and the Congress will likely become dysfunctional with personalities trying to grab the camera & microphone for the next 2 years.  (editorial: Wonderful !)

So let’s think short term and be very selective.  Until then and all year long . . . .  Happy New Year !

Price chart by MetaStock; used with permission.

The Year Winding Down December 25, 2022

December 23, 2022 –  Well we’re almost there . . . the end of 2022 is right in front of us.  And the most impactful categories were Ukraine (oil & commodities) and Inflation (interest rates & economy).  The biggest question is just how much and how fast will the world economies react to the economic slowdown driven by central banks increasing interest rates.

The whole idea is to dampen consumer demand without over doing it; a delicate balance.  Slowing economic growth will also slow revenues which hit profits / earnings, and we know that in the long run, profits (or the hope of them) drive stock prices.  2023 looks to be a very tepid year and hopefully no worse than that.  With the possibility of a recession comes a likely leg lower in the markets.  It’s hard to say that current stock prices are considered a “Value” since the price to earnings ratio remains above historic levels in most cases.

I’ve randomly select stocks in major sectors to compare their performance over the past year (to date).  As you can see about the only place to ride out 2022 was in the Energy sectors. Ouch ! (click on chart to enlarge)

The Short Term Sector table is shown below –

That’s about it.  Next week will be a low volume period with many folks on vacation.  And with low volume can also bring volatility in prices.  We’ve likely seen all of the year-end tax selling by now.  I think we’ll have to wait until 2023 begins to get a feel of where things are likely headed.  I’m heavy in Cash for the time being.

Wishing you & your family a Happy Holiday Season and a Prosperous New Year.   ………  Tom  ………..

Price chart by StockCharts.com; table by http://www.HighGrowthStock.com. Used with permission.

FED Is In It For The Long Haul December 17, 2022

December 16, 2022 –  The FED raised rates ½% as expected and the market initially thought that the end of rising rates was near, but Chairman Powell’s press briefing but that “to bed” quickly.  He stated that elevated rates will be here for “awhile”, likely well into 2023 before there will be a possible lowering.  The markets didn’t care for that and reverted back down.

How much lower?  That all depends.  We’re in the final stages of tax selling and we’ll need to see the options structure after Fridays “quad witching” of futures and options.  Going into Friday the amount of Puts and Calls was about equal, with large option volumes at strike prices just above the closing prices on Friday.  Did these options get “rolled forward” into next month or were they closed out?  We’ll get an indication of that on Monday.  But the call buyers got burned on Friday (strike prices above the Friday close).

In reality from an economic stand point not much has changed.  It’s going to take months to tame inflation and we’ll very likely get another ¾% to full point increase in 2023.  Recession is becoming more of a reality.  Let’s keep an eye on the Bond market and small cap index for clues as to an indication of whether big money is actually getting more optimistic.  Bond prices rising (like they have been) and the US Dollar falling is Bullish; will that continue?  The opposite is Bearish.

The chart shows that prices are back to the mid-June, 2022 levels (on the way down) and the mid-July, 2021 levels (on the way up).  Sure does make a case for active investing.

The Short Term Sector Strength table is shown below:

Next week will be slow with low trading volumes, but that can breed volatility, so be careful.  I’m likely not going to be very active, but areas I like are in Pharma / Biotech and Healthcare.  These are more defensive but can participate IF the market price structure improves.  Have a Good Week & Take Care.  ……  Tom  ……

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

At The Previous High December 3, 2022

December 2, 2022 –  Despite all of the glowing reports on this market, we’re actually at the previous high of 11492 back on November 15 on the broad NASDAQ Composite Index.  (see chart below)

Thus we really have not had that big breakout that many have proclaimed.  Since we’re technically “over bought” I’d expect a pullback early in the week.  Any move after that would be a better indication of a new trend.  However, December 14 looms in the background.  That’s when the FED announces its next interest rate move.  Powell is alluding to a ½% increase but that’s still an increase.  The economy remains strong and consumers continue to buy with Christmas retail sales increasing.  This is NOT a sign of inflation slowing down, as much as we’d like to see it.

What’s moving in the short term?  The table below shows the Short Term Sector Strength –

And so we watch and wait for the preverbal “Santa Clause Rally” . . . if it comes.  Beware of end of the year tax loss selling; that’s the Grinch.  Have a good week.      ……  Tom  ……

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

Watching & Waiting November 20, 2022

Nov. 18,2022 –  A lot of volatility back and forth this past week but not much commitment in either direction.  The number of Put hedges has dropped off significantly and it just “looks” like the markets “want” to go higher but need a good reason to do so.

We remain in a broad trading range that speaks of base building and thus a possible . . . change in trend.  As the 3^rd quarter earnings wrap up the stage is set for the holiday season and that may (just may) be a spark.  The next FED meeting is December 14 and there is MUCH anticipation as to the next interest rate announcement (the bet is on ½%).

The Short Term Sector Strength table –

Semiconductors want to be loved along with Biotech but there is more smoke than fire in those sectors.  Next week will be a short trading week, so I’m not anticipating much will be happening.  For those in the US, Happy Thanksgiving.   …………..  Tom  …………..

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