Sunday, May 17, 2015

Week In Review 5/11-5/15

The week ended with all the major US equity indexes having moved higher and the S&P 500 has now almost fully erased its year-to-date lag relative to Russell 2000 (2nd chart).

Looking under the hood, the week was a continuation of the current sideways trading range along with the now familiar divergence in breadth.  When the dust was settling at week's end, the S&P had reached the top end of the range only to stall again on Friday.

After a powerful move on Thursday, the market had the potential to pave some new ground on Friday but once again shifted into neutral right at the breakout level.   Breadth continues to lag but did pick up some this week.  For a continued move higher, we'd still like to see broader participation.  The current trading range has shown a characteristic of both buyers and sellers disappearing at the top and bottom of the channel.  We'll see if one party can make some meaningful headway in the near future.

Meanwhile, the VIX continues to show a high level of complacency as it has traded back to lows after a brief move higher last week.

The one area of weakness that concerns us is the sluggish behavior of small caps as witnessed in the chart of the IWM.  Still, we believe this has more to do with the current weakness of the dollar as money has flowed into bigger cap names of late.  Definitely a relationship and situation that bears continued observation.

Just when the bond bears were gaining some traction they pulled a houdini and allowed a huge rally Friday from some prior support areas.  We had a sneaky suspicion that the bond bulls weren't going to give up that easy.

Was this just an oversold bounce in a new downtrend or the start of a move higher? We have no way of knowing either way but it is something that piqued our interest.

From a sector standpoint, the market was lead by staples and utilities while financials were the week's laggard.

Another area of strength this week came from the commodity space.  Gold and silver made big price gains this week along with a nice move in the agriculture space.

Links of the week

WSJ Comments on Past Performance and Future Results

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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