Sunday, November 1, 2015

Week In Review (10/26 - 10/30)

Stocks, for the most part, posted modest gains this week as the S&P 500 and Nasdaq gained 0.2% and 0.4%, respectively.  Small Caps however failed to log gains as the Russell 2000 was fell -0.4%.  While it was a fairly quiet week, the month of October as a whole was anything but as each of the major domestic indexes enjoyed strong rallies.

For the month, the Nasdaq lead the way with a 9.4% advance and the S&P and Dow were close behind with gains of nearly 8.5%.  Small Caps did lag a bit in relative terms posting gains of 5.6% but still a healthy month when viewed by itself.

October's strong gains brought some of the indexes back to positive territory on a year-to-date basis as well.  The Nasdaq has now surged 6.7% so far in 2015 while the S&P has poked it's head above zero and sits at a 1% gain for the year.  On the flipside, the Dow and Russell 2000 continue to sit in negative ground as they've both lost -3.5% on the year.  We're watching, specifically the Russell, to see if continued weakness there carries greater meaning for the overall market going forward.

On Wednesday, we took a look at some of the market's current breadth readings and determined that there had been some healthy improvements along that front.  Our conclusion was that while things looked a little overheated here in the near-term, the market was gaining the type of participation that suggests that further intermediate/longer-term gains may be possible.

However, one thing we'll want to see is some of the bigger consumer stocks come alive in the final two months of the year to help prove that people are out there spending.  Just to name a few, Walmart, Dunkin Brands, Chipotle and CVS all failed to keep up with the market in October.  It would be much easier for the indexes to move higher into year-end if the consumer and companies like these are along for the ride.

After such a strong rally, it would only make sense to assess where the market's next points of resistance might be.  Market analyst Andrew Nyquist ran a quick and insightful update this week that covers this topic.  He wisely points out that one major area of challenge for the market could be 2,096  on the S&P which is where the late-August breakdown began (red bar).

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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