Tuesday, October 6, 2015

Quick Observations

Here's a quick roundup of observations on the market action of the last several days:
  • The market was due for this oversold bounce after several areas and sectors had re-tested their August lows.
  • We got just that as the S&P 500 posted its first 5-day winning streak of 2015 and gained 3.5% in the first 3 days of October.
  • Many charts showed positive divergence on last week's test of the lows -  For example, there was a massive dry up of stocks in the S&P making new 52-week lows compared to the market's late August drop.  See the 2nd chart below.
  • The market has now rallied into areas posing significant overhead resistance.  
  • This current area includes the 50% retracement point of the range from the year's highs to the recent lows, the S&P's 50-day moving average is at 1,998 (the index closed at 1,980 today) and it's an area the index visited several times during December 2014 - February 2015 timeframe.

Further, there's been a lot of concern surrounding high yield bonds lately and deservedly so.  One related chart that looks pretty worrisome is the ratio chart of JNK to LQD.  It has broken significant long-term support and now sits at levels not seen in several years.

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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