Saturday, September 20, 2008

Weekly Rewind - Week 38 (09/19/08)

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Did I suggest 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 significant 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.
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