Thursday, January 15, 2015

Chop Fest 2015

Jeff Gundlach was recently quoted as saying 2015 would be the year of the V.  V is for volatility.  So far his call is proving to be spot on.

In the spirit of choppiness and uncertainty, we saw significant divergence yesterday in 2 of our indicators that we considered worth sharing.  

First, we had 23 stocks in our universe up 50% or more in yesterday's session however all but 2 were in the healthcare/biotech space.  Out of that 23, 20 were strictly biotechs.  This is a level that, historically, has proven to show the market is overheated in the near-term.  If we look back at the data since the beginning of 2012 we see that in the short-term (5, 10, and 20 days) the results show little price progress versus when we are not at overbought levels.

Nas+5 Nas+10 Nas+20 Nas+50
50% Up > 20 -0.16% -0.29% 0.34% 2.29%
50% Up < 20 0.37% 0.90% 1.68% 3.77%

On the other hand we see a positive divergence taking shape in the difference between 20 day highs and lows.  This indicator is showing much less selling pressure as we test the early January and December lows. 


With current headline risk (currency market fluctuations and monetary policy announcements) making conditions ripe for wild daily volatility, many of our indicators are flashing the conflicting signals you might expect.  We're content playing light here while waiting for some more definitive evidence. 

Ryan Worch is the Managing Director of Worch Capital LLC. Worch Capital LLC is the general partner of a long/short equity strategy that operates with a directional bias and while emphasizing capital preservation at all times.

Ryan on: Ryan Worch on LinkedIn, Ryan Worch on Twitter | Ryan Worch Bio