This week, equities continued to benefit from what has evolved into a violent commodities liquidation (London Free Press - Oil Hits Three Month Lows; Bloomberg - Gold, Oil Slump). Although a bit mixed, the broadest U.S. indices ended in the plus column, with the Russell 2000 (IWM) leading for a gain of +2.7%. This was inspite of reports of weak retail sales, record home foreclosures, job pressures and hot inflation data (Yahoo! - Economic Table).
However, the export sensitive Dow Jones Industrial Average (DIA) and EAFE International Index (EFA) didn't fair as well, down -0.1% and -3.4%, respectively on continued dollar gains and news of economic weakness abroad (Bloomberg - Euro Falls).
Looking across the sector spectrum, Consumer Discretionaries (XLY) put in the strongest gains for the week of +2.8%, while Financials (XLF) declined -2.6%. This had some market commentators discounting next week's upside potential even as the likes of Ambac and MBIA were upgraded on Friday (Market Watch - Insurers Pace Gainers). However, of all the tracked ETFs within the scope of this article, it was really Precious Metals (DBP) that took it hardest on the chin, posting a -9.9% loss, now down over -20% in the last four weeks alone.
While commodities corrections are known to be turbulent, this further decline leaves metals heavily oversold and positioned for a short-term technical bounce. On a related dollar trade, the same can now be said of international issues. In contrast, while Technology (XLK) may yet have some legs left in its powerful upward move, it has become highly overbought and due for at least a brief correction soon, as have Healthcare (XLV) and Small-Cap Value (PWJ) stocks.
Looking ahead to Week 34 of 2008, trading action will be dominated by Producer Price Index and Housing data on Tuesday; Crude Inventories on Wednesday; and Jobless Claims, Leading Indicators and Philadelphia Fed readings on Thursday. As earnings season comes to an end, other news to watch will be the progress of the prospective Russia/Georgia truce (New York Times - Kremlin Signs), and Tropical Storm Fay in the Gulf (Bloomberg - Storm Nears Cuba).
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