Sunday, September 7, 2008

Weekly Rewind - Week 36 (09/05/08)

In another reversal of fortune, the major equity indices fell sharply this holiday shortened week on continued deleveraging, and fears of global slowing and financial sector failures. In addition, hedge fund liquidations likely played a key role in this most recent bout of selling. (Bloomberg - Ospraie; Australian - Funds Ready to Blow). The S&P500 fell -4.4% over five-trading days (-3.5% Friday to Friday), while the NASDAQ 100 dropped a whopping -7.8% (-5.8% Friday to Friday) on violent rotation.

After the worst of the slide on Thursday when the Dow fell over 340 points, however, Friday ended mostly positive inspite of a weak jobs report as rumors of a Federal takeover of the troubled GSEs solidified. (AFP - Government Details Intervention; Reuters - Jobs Report)

Sectorwise, Financial and US Dollar ETFs were alone in their ability to rally over a five-day period (XLF +1.6%; UUP +2.1%). This was despite Commodities' continued decline, underscoring the slowdown premise behind the marketwide fall (DBC -5.8%). However, while the Dollar is looking overbought, with the exception of the Consumer and Service areas, the rest of the market now looks quite oversold across the board. (Of course, this doesn't mean it can't go lower!) From a style perspective, the value quadrants held in the the best on the Financials boost (PWY -2.2%).

Looking ahead to Week 37 of 2008, Friday's trade will be the most packed with market moving releases, including the Producer Price Index and Retail Sales reports. That said, Thursday's Initial Jobless Claims will undoubtedly be closely watched as a confirming data point towards the slowdown acceleration premise.

Beyond the GSEs, traders will also be watching the progress of Hurricane Ike (AP - Ike Looms), a potential Nomura investment in Lehman (Yomiuri - Lehman Stake), and the reception of US Automakers by Washington (AFP - Big Three Turn for Help). Hey, we wouldn't want Chrysler left out of any big government salvation plans -- remember this?

o Yahoo! U.S. Earnings Calendar
o Yahoo! U.S. Economic Calendar

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Trader Joe said...

Agree that the market is oversold. That is why we had today strong reaction on the news in the S&P 500 and DJI sectors. Yet, the Nasdaq 100 is still at the bottom.

Jeff Pietsch CFA, Esq said...

Thanks Joe. In my studies, although the NASDAQ 100 is higher beta, the S&P 500 is more reliable on a bounce trade. As long as the global slowing threat remains in place, the NAS will underperform. Amazing rotation though.