Market Rewind: Exceptional Range

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Did I mention that it might be "yet another volatile week," in last week's summary? After five days of exceptional range on fears of systemic financial collapse and new government capital market initiatives (Bloomberg - Stock Rise; AP - $700B Bailout Negotiated), the "big three" U.S. equity indices managed to close just slightly off of last week's closes.

Indeed, the S&P500 (SPY) closed down on Friday a mere -1.0%, as compared to its deepest draw-down of -9.7% just a day before. Meanwhile, both the Russell 2000 and Emerging Markets indices rocketed higher on an explosive bounce and relative dollar weakness (IWM +3.8%/EEM +5.3%/UUP -2.0%).

Sectorwise, the Financial and Energy complexes seriously outperformed (XLF +6.8%/XLE +3.7%), while the Consumer Staples and Technology areas saw continued negative rotation (XLP -4.3%/XLK -3.8%). Remarkably, in spite of incrediblE volatility, the Financial sector ETF's overall performance during the past four weeks affords it one of the highest "Safety" Measures among the tracked group (XLF Omega[20] = 127%), although Real Estate (IYR) and Consumer Staples have both shown significantly less volatility and greater trendiness. (More on these new measures in an upcoming post.)

In the commodities realm, Precious Metals posted a record rebound (DBP +14.6%) on a rush to safety as global fears pushed the VIX implied volatility measure up to a multi-year high of 42+ (Reuters - Volatility Stays High).

We have a relatively light, but important economic schedule next week, as follows:

• Wednesday - Existing Home Sales & Crude Inventory
• Thursday - Initial Claims; New Home Sales & Durable Orders
• Friday - Final GDP & Chain Deflator; Revised Michigan Sentiment

As oversold as equities remain in the longer time frames, the late week upsurge leaves many sectors nearing short-term overbought. Going into Week 39, the markets may likely see a pause or pullback as participants take time to consider the deeper meaning and longer-term implications of this week's sweeping government interventions.

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

Disclaimer: Never to be considered investment advice.

Comments

[whidbey:]

I think you are correct. Nothing has changed except we have some promises, from government. Not bankable, so we watch and wait. The over looked consumer has every reason to be suspicious, after all he just got measurably poorer, more overlooked, and he knows that the sweat over the banks is just a twice told tale with an ending not much different than the prior bank riots. we have right to some time to see of the dust will settle and who is left standing.

2008 Sep 21 02:16 PM

[Delojozafado:]

If a frog had a glass (_o_) he would not hop around so much. Outlawing shorting may have some short term benefits. The individual investor however saw the last two days in the markets as an opportunity to "IF it ever comes back to where I can afford to sell it". The financials have far to go before LT money is going to flow back in. The flight is on going from the financials. The money is going to go to the weak dollar plays EWZ, EWA,DBP, the alt energy plays like GEX (global), PBW, GLHIF (Safe6.6%yld), and the commodities like KYE, RJI,DGP,DIG,DBA, MOO, KOL,CRESY(global). China today purchased a tanker load of LNG on the spot market from Equatorial Guinea in Africa. They are paying $14.50 /MM~BTU. The North American market price of less than $8 is unsustainable. 15 % of our Nat Gas now comes from Canada. As oil prices rise this drives up Nat Gas on a leveraged basis as more Canadian Gas is diverted and consumed in the oil sands projects. Discounting the exports to the US the US exports more LNG than Canada. Almost all of our LNG exports are going to Japan from Alaska's Kenai pennisula terminal. This is another fragile foundation that is simply unsustainable. The Canadians are going to soon be exporting LNG from the east and west coasts, as the world market finds a price level that is way above the current North American price of $7.65. The Nat gas plays are super opportunities here with UNG, FSNGX,ENY,FCG & again KYE all screaming buys. The PMX is now yielding 7%. Tax free LT muni debt in a CEF with 40% leverage still selling at a premium to NAV. This is a great play for income but is a clue to what is about to happen to the US treasury bonds. The DSKSX and the PST are just one more way to get a hedge & make a nice gain when putting your principal at risk for interest rate risk for safe income. Some further mitigation can be gotten by using some FLTMX Med term tax free yielding munis to supplement a PMX. The WIA is just another great yielder with built in inflation risk protection. The Uncle is adding another $1.5 Trillion to the national debt that at $7-8 trillion includes no Iraq/Afghanistan war spending & no allowance for the fictional Medicare and Social Security Trust funds, to bail out these financials. I am getting my first load of winter heating fuel Weds. Over the next 5 weeks before the election voters are not just going to be getting heating fuels they are going to be getting their 3rd qtr IRA, 401-k 403-b statements. The politicians are scrambling to spend our grand children's futures. They are even more terrified than the boomer voters watching +20% of their retirement assets suddenly disappear. These are not so sure about how they are going to benefit in the long term by staying invested.

2008 Sep 22 09:36 AM