Tuesday, March 24, 2015

Catching Up on the Week That Was

Forgive us for staying quiet on the blog over the weekend.  We had the opportunity to attend the Arnold Palmer Invitational in Orlando on Saturday and Sunday.  It's quite an event they put on at the Bay Hill Course and Sunday's closing holes were awesome to witness.

With that in mind, we wanted to circle back and touch on last week's action as there were some significant events.  For the week almost everything was positive with the Federal Reserve press conference working the market into a buying mood.  It seems investors were positioned for one thing and Yellen and company delivered the opposite, catching most off guard and forced to buy in a frenzy.


The Nasdaq, Russell 2k, and S&P Midcap all finished the week in new high ground.  The S&P 500, Dow, and NYSE continue to lag but are not far behind with new highs approaching.

One nice positive was the expansion of breadth during last week's move to the upside.  This came as a welcome sign as breadth has frequently shown negative divergence during several of the market's recent moves higher.  Below is a chart of all US 52-week highs minus lows (aka Net New Highs).  We got the highest reading since last summer. 

Moving on to this week, there remains a lot of talk about a biotech bubble.  Everyone loves to try to call the top but very few can actually do it.  Regardless, we'll let others argue that topic.  Yesterday started off with biotech's getting whacked hard and this is not a surprise for any sector that's experienced such a run.  Here, Ben Carlson takes an interesting look at the recent run in biotechs compared to the Nasdaq bubble of the late 90's.

But if we step back and look at a longer term weekly chart of the IBB, we can see a well defined channel has formed from late 2011.  However, we are currently closer to the upper channel line suggesting further/immediate upside could be limited.  Then again, there's always the potential for a parabolic move higher which would surely bring the bubble theory a bit more relevance.

For now the general market continues to grind higher as volatility remains low and supported by accommodative global monetary policy.  We don't think returns will be as easy to come by as prior years but there could still be plenty of upside left in this bull. 

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.

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