Wednesday, January 6, 2016

Some Quick Observations

After the recent plunge in global markets we wanted to take a specific look at where the US markets stood in the midst of all this.  A good summarization of the comments below would be that we're in, at best, an indecisive market and, at worst, nearing the precipice of more significant declines.

The S&P 500 finished December below it's now flattened 12-month moving average line as it has continued to bounce around, above and below this indicator for the last several months.

The IWM (Russell 2000 small cap ETF) is bearing some similarities to the 2007 top.  If it plays out the same way the right-side of the pattern should should be completed sometime around this summer with a break of the neckline in late summer or early fall.  If this exact scenario were to play out again (which we are by no means predicting), the choppy action we've grown all too familiar with would be likely to continue for several more months.

An equity market flight to safety looks to be underway as the breakdown of the XLY:XLP (Discretionary : Staples) ratio continues to unfold after the Discretionary ETF failed to follow through on its original breakout in the middle of last year.

Among the major SPDR ETFs, only XLP and XLU, both "defensive" sectors, are above their respective 50 and 200 day moving averages.  All other major sector ETFs are below both the 50 and 200-day MAs.

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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