Tuesday, April 21, 2015
So what's next? Well, we've really only got 3 scenarios to consider so let's take a look:
1. Breakout to upside. This is obviously the most bullish scenario and could bring about opportunities for buying breakouts and momentum in individual names. A break above 2120 in S&P 500 is the level to watch. However, participation in the form of breadth needs to increase for this to have staying power.
2. Continue to be range-bound. Unfortunately this might be the most likely outcome and would cause the most frustration for both longs and shorts. This has been the dominant market theme since last September and caused holding periods to shrink. A reversion to the mean strategy can be successful at capturing profits in these types of markets.
3. Breakout to downside. I still think this is the least likely scenario. This doesn't mean we can't have a pullback but in a world flush with liquidity in which global central banks are doing everything in their power to favor riskier assets, corrections should be limited.
We examine these scenarios on a daily basis while looking for clues to see if any are playing out and how we might be able to exploit them. We do this while remaining as objective as possible and playing devil's advocate at every turn.
Not terribly exciting but these daily assessments help keep things in perspective.
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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