Weekly ETF Rewind: Market's Broken, Can It Be Fixed?

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(Glossary)

Last week's performance looked just like the prior week's - albeit magnified - leaving the S&P500 (SPY) down -7.5% (note: 5-trading days). In fact, the Financials (XLF) lost a whopping -19.1% on nationalization fears (Financial Times - Fears Rattle Markets; AP - White House Response). Only Precious Metals (DBP) and the Dollar (UUP) managed to post gains of +4.9% and +0.1%, respectively, on a global safety trade. The only other metric showing gains was the VIX (Implied Options Volatility), closing the week back near 50 and stretched +9.2% above its 15-day moving average.

In normal times, this would be a bullish indication, as would the majority of tracked securities showing near- and intermediate-term oversold price index readings (SPY RSI[2] = 1!). However, we are so overstretched to the downside - this market is clearly broken. Some modicum of positive news flow will be required to turn this train wreck around going into the end of the month. Perhaps clarity on the banking situation will provide that - we'll just have to wait and see.

Week Nine of 2009 features the following reporting calendars, including Consumer Confidence, Housing Data, Durable Goods, and Preliminary GDP:

• Yahoo! - U.S. Economic Calendar
• Yahoo! - U.S. Earnings Calendar

Market watchers will also be keeping an eye on developments overseas at HSBC (HBC) (Independent -HSBC Considers Cash Call) and in Germany (BBC - $63B Stimulus Package). Meanwhile, many of our states continue to march towards effective bankruptcy (Bloomberg - Stimulus Fails to Fix States' Woes).

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Enjoy the rest of your weekend!

Comments

[S2C:]

Perhaps it is "broken" or "on track" depending if you are bullish or bearish. This appears like market action one would see during a transition from recession to depression expectations and all the raw fear that goes with it.

Feb 22 10:00 AM

[Rashmi:]

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Feb 23 01:20 AM

[chopshop:]

Regarding the overstretched and broken market can someone please comment on this: I know that traders do not believe shorts hurt the market but would that be true In times of overselling with fear in a market, could this be different than shorting single stocks in a healthy market? Shorting ETFs and indexes seems to be shorting on steroids since many stocks are being shorted both deserving and not;short the FXI or dow enough and you would force redemtions in the etf or index spreading fear and selling etc?
Wouldn't it help heal a broken market if it was treated as fragile and the shorts were kept to individual stocks and not to etfs and indexes?

Feb 25 09:18 PM