Friday, May 1, 2015

Looking Back At April

The major market indexes finished the week on a bearish note however they were still able to post moderately bullish results for April as 4 out of the 5 gauges referenced below were up for the month.  As we touched on in previous posts, some significant weakness started to show up in small caps in the 2nd half of the month as the Russell 2000 finished down more than 2.5%.

A theme that has continued for months now is the choppiness of the S&P 500.  It remains entrenched in a 2+ month trading range.  The S&P had yet another failed breakout to new highs this week in what has become an all too familiar exercise.  The last few days of the month saw volatility pick up as the S&P finished down 3 out of the last 4 days.  Small caps have broken their 50-day moving average while testing prior breakout levels and micro caps (IWC) also failed a breakout to new highs.

If we breakdown what worked this month from a larger global and asset class standpoint (using the ETF heat map from Finviz), we see the following:
  • China continues to be very strong
  • Emerging markets are asserting themselves as a new leader
  • Gold and oil have rallied hard off previous lows as commodities are looking to find a bottom.
  • Some prior leaders are starting to roll over.  Examples include the dollar, India, Germany, and biotech's. 
  • Rally in interest rates have weighed on real estate market. 

The moves in currencies are something that we continue to watch closely as they're having a cause and effect relationship on asset classes.  The recent rally in the Euro vs. dollar weakness has pushed the Dax (German Index) lower as they are heavily export driven.  Meanwhile oil is moving higher as the dollar has weakened.  On top of currency moves you have yields moving higher which is pushing real estate related stocks lower.  Check out the weakness in ITB, VNQ, XHB, IYR.  These emerging themes are something we track daily as they are the small market ripples that can create waves/trends.  We hope to identify them early and hop on for the ride.

Here's what we were reading this week:

Is there actually a huge amount of cash on the sidelines?

Stock valuations are no help in timing trades

Surveying your trading style

Some history on "May Day"

A young surgeon's parting wisdom on life.  Very powerful words.

How the headlines on GDP growth were wrong

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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