Special Risk Capital Management LLC

A Scary Place July 15, 2016

July 15, 2016 –  At times . . . the world can be a scary place, and at times, so can the markets.  Things just don’t feel or seem “right” and I’m thinking we may be in one of those places.  First let’s take a look at a chart that I’m sending to my clients this weekend.  It’s of the S&P 500 Index over the past +3 years.  (click on it to enlarge)

Now the S&P 500Index has been one of the better markets in the world as of late.  It measures the 500 biggest US companies.  I’ve highlighted the fact that for nearly 1 1/2 years we’ve not gained anything . . . 0% return for all of that risk.  The red line shows a 10% change in price (either up or down), and we’ll call that volatility “risk”.  Also on this chart is the area last spring / summer where the market took a noticeable “change in character” (in purple).  No longer did we get higher highs and higher lows as the market stair steps upward.  Wyckoff warned of this “change in character” and the question is whether we’re in a large trading range of re-accumulation with higher highs returning, or in a big Distribution structure.  In any case things are NOT like they were in the pre-spring of 2015 period of steady gains.

The chart below is my trusty NASDAQ Composite chart.  A lesser known index, but much broader since it covers far more companies and not just the big guys.

I’m still labeling the current move as a possible UTAD (Up Thrust After Distribution).  Prices above previous swing highs, (check) on lower volume / demand, (check).  Now this is not a slam dunk “got to move down” call.  It doesn’t have to play out as a Distribution structure but we should at least acknowledge that this is present and could continue to develop.  IF it does, next week we would see a sharp sell off on a wide range bar, with a Close at / near the bottom of the daily range (maybe a couple of days).  This would be a sign of weakness (SOW); volume could be light to average.  Then a weak move up on narrow bars (buying = selling), with volume increasing.  This would show a  significant liquidation of stock.  Then a continued, steady drop.  IF we don’t see this structure develop then a minor drop to around the 4905 level on light volume and then a snap back on increasing volume would take the UTAD off the boards.

I note the volume dropping off the last few days and the Money Flow indicator (top chart in red) weakening as well.  Also the narrow range bars this week don’t show a lot of buying commitment or interest.

The world is scary this week and so could be the stock market.  No time to be heroic, but a time for caution.   I’ll be traveling for the next few weeks so postings may be late and/or brief, but I’m make every effort to keep things going in a timely manner.  (Always check the date at the beginning of the post for the last data date.  Charts & comments are circa that time frame.)   Have a good week.    …….  Tom  ……..

charts by MetaStock; used with permission.

Reaction Back to Support March 14, 2014

A wise (and experienced) fund manager once told me that “if the market is weak, it responds to bad news with weakness . . . if strong, it ignores it.”  It was one of those weeks.  Continued bad news out of the Ukraine and poor economic news out of China.  As I’ve said many times before, once we’re at the upper channel lines (purple) of this trend, we’re susceptible to corrections; the risk is at the top of the channel.  So not surprising, bad news near the top of this channel brought on selling.

We could see this coming with those narrow range bars toward the top.  This indicates selling (nearly) equal to buying, so price goes nowhere.  In context (i.e. at the top) the next move is likely down; and it did.

We also note the generally higher volume as of late; supply coming into the market.  I’ve labeled the top bar as a possible “bc ?”, meaning a Buying Climax in a minor price structure (so far).  Also note the narrow range bar on this Friday, perhaps buying coming back into the market to match the selling at the important Support line?  If so, that could be our Automatic Reaction (ar ?) point . . . it would be a locally price level to do that.  🙂

And so what the market does from here will either confirm or deny this structure scenario.  We could see an Upthrust next with prices going back toward the highs but on very light volume.  That’s our chance to exit gracefully and sit back and wait it out.  High volume up bars would call that into question though.  The other possibility is that we just continue down.  And that could for tell a possible larger price structure (with capital letters).  A major top / Distribution structure will take longer to develop and confirm.  Something to be seen on weekly charts as well.

This Bull market is in its 5th anniversary and is the 6th longest in history, being the 4th largest (in % gains) of all time.  Thus seeing a larger price structure develop would not be a surprise for us . . . . would it?  For now, we “Stay in the Now” and only trade what we see, not falling into the trap of predictions.  As it is said: “Even a broken clock is right twice a day.” and those that predict are only sometimes right (but that’s all we hear about).

Is there anything doing at least OK now?  Yeah a few.  Top sector table is below.

Watch the support level next week and observe how this market reacts.  Price “leads” but volume will confirm that direction (or disprove it).  Have a good week.    ………….  Tom  ………………

chart by MetaStock; table by www.HighGrowthStock.com; used with permission:  click on graphics to enlarge