Special Risk Capital Management LLC

Breakout Continues, but At Resistance May 27, 2023

May 26, 2023 – Again, this will be short and to the point.  The market indexes are at a resistance level (previous swing high) after a very good week.  This is a logical & typical level to pause and consolidate before resuming a move higher.  Thus I’m expecting a slight pullback with some “back and forth” movement next week.  Watch the volume coming into / out of the market.

Overall I remain Bullish, but this market is very much news driven.  It is expecting a “Goldie Locks” economy going forward, that is, no or minimal interest rate increases and a soft landing for the economy.

But . . . Inflation remains “sticky: at an annual rate of 4.4% (above FED goals).

And . . . the economy remains stubbornly strong (consumers keep buying).  This leaves the FED in an uncomfortable position.  Do they risk more rate increases, a possible recession, then corporate earnings headed lower and the resulting stock prices falling as well?  “Wild Cards” are out there: a US default and the Ukrainian war with an unknown Russian response.

I note the market indexes are higher but on lower volume; not a strong positive vote for the immediate future.  Technology continues to be the major (sole?) force that is driving these markets.  We need more participation.  I’m selective with investments and cautious.  The “All Clear” has not been sounded.

Have a good week.        ………….  Tom  …………….

Chart by MetaStock & table by HighGrowthStockInvestor.com; used with permission.

Half Way Back May 6, 2023

May 5, 2023 – Well we’re about half the way back from the Low (Oct. 2022) to the previous High (Nov. 2021).  The top of the “green box” / trading range shows that level around 12270 on the NASDAQ Composite Index.  Next week will be interesting to see how traders react now that most of the earnings reports are behind us.  Is the “cup half empty or half full?”  Is the Banking Crisis behind us?  Will Ukraine begin a counter offensive & how will Putin react?

Click on Chart to Enlarge It

I see two scenarios.  First, a false breakout above 12270 for a couple of days then a fall back into the trading range with little progress.  The other is a breakout higher, a minor pullback for a pause, a grind higher for another 5% or so and then a consolidation into the summer.

Earnings were generally good with stock buybacks buoying stocks, but the forward guidance was muted.  The economy is slowing though not as fast as the FED would like.  The market is trying hard to anticipate a rate pause followed by a rate drop in the Fall.  But so far there just are no strong signs of any of that wishful thinking.  Here’s a chart of inflation from the St. Louis FED to put things in perspective.

I’ve talked about how a few large corporations have kept the indexes strong.  The pie chart shows the percent of stocks in the S&P 1500 Index that are above their 20 day moving averages and just how far above / below they are.  A pretty mixed sign with it favoring more weakness than a strong move higher.

Overall, I’m long term Bullish but I think that’s it is going to take a lot longer than people think.  There is no “V Shaped Recovery” in the cards just a long drawn out process with things slowing down over the summer months.

What is showing a t least some near term strength?  I see BioTech and India, with Precious Metals and Mexico in the mix but they are rather extended and may be due for a correction.  That’s it for this week.  Take Care and have a good week.         …………..  Tom  ……………

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

Big Tech Earnings to the Rescue April 29, 2023

April 28,2023 –  The awaited big tech earnings week is over (only a few left to report) and it was very positive, hence the market rallied.  Non-Tech earnings are generally good so far with a full slate of Consumer Based corporate earnings up next week.

Click on Chart to Enlarge

And so we return to the upper level of our “Step Up” consolidation pattern (green box) to await a commitment of “big money” to go either higher or traders selling it back down to the lower levels.  No recession just yet as the Advanced GNP figure came in at a 1.1% annual growth rate.  The economy is slowing but not yet contracting.  The next FED meeting may be the catalyst since earnings are generally ‘good to OK’.  We won’t have to wait long . . . . It’s next Wednesday.  The markets are expecting a ¼% rise with an indication of a pause in the coming months.  The market love “certainty” and haste “uncertainty”; I think investors are just looking for stability at this point.

The Short Term Sector Strength table is shown below –

And so we wait for the FED announcement and watch the earnings reports roll in.  Not much else is new with the same old issues still out there.  I am lightly invested looking for signs of a defined trend.  Have a good week.           ………….  Tom  …………

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

Bottom or Not, Here We Come April 22, 2023

April 21, 2023 –  This week’s title is a ‘Play’ on the kid’s phrase “Ready or Not, Here We Come” in ‘Hide & Go Seek’.  This market is trying to figure out whether the October low was in fact ‘The Low’ for this cycle, or are we in for another drop.  And it all depends on if the FED can engineer a ‘soft landing’ with an modest economic slowdown or if we just go into a recession.  October was a guess that, even though interest rates were rising, that we were close to the end with a soft landing.  If not . . . a major slowdown and recession are around the corner.

The chart above is my point.  In the past, recessions did not start with interest rates rising; they started as the FED cut interest rates.  (yeah, I know, it is counter intuitive but true)

Corporate earnings are generally slowing / lower and next week we get a big dose of big tech earnings and forward guidance.  A modest slowdown is the goal but only time will tell if the consumer pulls back in a big way, for a longer period of time.  Hence the price chart showing two different trading ranges.  The lower base trading range in Blue and the current higher range (hopeful) one in Green. 

Add to all of this the unknown of Russia’s reaction to a Spring Ukrainian offensive in the war and the political theater of the debt limit.  BTW, the fastest way to devalue the US Dollar and raise prices would be a default.  Hard to believe that anyone really wants that, but . . . .    I also note in the chart that the upper range level goes all the way back to September 12, 2022 (green circle).  Interesting.

The Short Term Sector Strength table is shown below –

With trillions of dollars remaining on the sidelines it’s easy to say that the future is unclear and thus I’ve taken only small select positions.  I think we really need to see a weekly close above the 12270 level on healthy volume.  That would indicate longer term investment is back in vogue.

Have a good week.   …….  Tom …….

Price chart by MetaStock; table by www.HighGrowthStock.com; other as shown.

About to Get Much Better . . . Or Much Worse April 16, 2023

April 14, 2023 – I typically use multiple sources to check my own analysis each week.  And this week the phase that stuck with me was “It’s about to get much better or much worse”.   This dichotomy of thinking actually makes sense, at least to me.  Since the mid October lows in the markets we’ve had a steady interest rate rise and banks (& the FED) bailing out other banks worldwide.  Add to that inflation remaining stubbornly high and corporate forward earnings guidance lower plus increasing layoffs (especially in the Tech industry).   But . . .  the market went higher; good news, right?

. Click on Chart to Enlarge

Oh, I forgot to mention the war in Ukraine and the strain that it is putting on many western countries.   My “take” on why is basic human nature:  “I want to pick the bottom”.  Folks are just afraid of missing out and are willing to take a chance that the economy and markets will improve, and soon.  After all, why wait?

Consensus is that the FED will stop raising interest rates after the May ¼% increase then maybe (just maybe) start to lower them late Summer / Fall.  OK, but even IF that comes to pass history shows us that recessions actual start when the FED lowers rates, so the “bet” must be that we’re going to have a soft landings and no significant recession of economic growth.  That could be and the lows in October may hold; “About to Get Much Better”.  Or not: “About to Get Much Worse” with an actual significant contraction in the economy and lower earnings.  The bottom line is no one really knows with any certainty and there still is a lot of money on the sidelines waiting.

I note that just 5 companies (Apple, Google, Microsoft, Tesla & Amazon) make up over 20% of the S&P 500 Index (because it is capital weighted; bigger companies have the most influence).  That largeness allows institutions the liquidity to move in and out easier without affecting prices.  I note that just 53% of the companies in the Index are above their 50 day moving average.  Not a broad vote of confidence.

March Retail Sales were disappointing on Friday and both the 10 and 30 year bond auctions yielded higher interest rates.  On the flip side, big banks reported great earnings, likely with the help of a very liquid FED to support the industry.  First quarter earning start to gear up this week and that may be a window into future corporate earnings and perceived economic strength.  So we remain in a broad range, trying to move higher but so far having trouble getting above the mid-August high.  I am taking scaled and cautious positions but not completely convinced that we’re “out of the woods” just yet.

Have a Good Week.         …………  Tom  …………

Price chart by MetaStock;  Used with permission.

Hopeful and Cautious April 1, 2023

March 31, 2023 – I’m “uber” busy this weekend, so it will be short.  Yes, we have an “almost breakout” that started late this week.  But keep in might that it was the end of the quarter and volume only picked up the last two days.  I say “almost” because we are approaching the previous high on February 2 but have not quite broken above it.  (see chart below)

Click on Chart to Enlarge

Seasonality is a plus over the next 2 weeks and the markets appear to have recovered from the bank scares of last week.  The PCE (Personal Consumption Expenditures) data came in basically unchanged so inflation likely remains steady at around 4.6 % annualized.  With consumer spending remaining strong the pressure is on the FED to increase rates ¼% next month.  But then what?  Markets are thinking a pause and then cuts late in the year.

Technologies, especially large cap companies, are the strongest in the market right now.  The Short Term Sector Strength table is shown below.

I am starting to re-enter the market; ‘scaling in’ is the watch word right now.  I’d sure like to see some follow through or at least stabilizing near these levels before I commit more funds.  So far, so good, but recovery will take much longer than people think (or would like).  I remain cautious but hopeful.

Have a good week.      ………  Tom  ……..

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

Hiding Out In Tech March 25, 2023

March 24, 2023 – I’ve covered this before but it bears repeating.  Market Breath is poor (as measured by the number of stocks advancing to the number declining).  So why are the indexes relatively strong?  Well most of the institutional money must stay invested so where do you go?  To the strongest sector(s) that are big enough to absorb the funds.  The saying is “Wearing the cleanest of the dirty shirts”.  Right now the “cleanest” sector is Technology.

Click On Chart to Enlarge

To top it all off, most sectors are Capital weighted, that is the number of shares times the stock price.  (The Dow is one exception where it is price weighted.)  Thus the big, high prices stocks (i.e. technology) have the biggest effect on the value of the index.   The result is “maybe this market is not as strong as the index says it is” since the strength may be concentrated in only a small number of stocks.

Banking & Financial jitters continue especially in Europe where many are waiting for “the other shoe to drop”.  Here in the US, the FED is loaning out short term money to banks to maintain their liquidity (& viability).  About $160 billion over the past 2 weeks compared to typical levels.  The market is concerned about credit risks, no doubt about it.

The Short Term Sector Strength table is shown below –

Have a good week and remain on guard.  It may not be over just yet.   ……….  Tom  ………..

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