Friday, October 10, 2008

Weekly Rewind - Week 41 (10/10/08)

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Goodness Gracious Late Cretaceous -- Equity markets were pummeled back to the stone age this week. (Alright...) Well, I am glad that I caveated my positive outlook for these last five days with a Black Swan comment, because that is exactly what we got. In one of the worst weeks in market history, equity commentators could only draw analogies to 1929. Once again, save some surprising US Dollar strength (UUP +0.3%), the S&P 500 (SPY) recorded a truly staggering -19.8% decline over a period of record ranges and little respite as credit markets refused to thaw on a global basis and the Lehman CDS auction took place. (FT - Icelandic Banks; BW - Global Cuts; NYT - Insurance Next Big Test)

In fact, the VIX options volatility index nearly reached 77 on Friday, now some +53% above its 15-day moving average. That is a whopping stretch, my friends (please be careful with recently owned options). However, for the first time in a while, the NASDAQ 100 showed relative strength, down a mere -13.4% on positive IBM earnings. Sectorwise, Transports and Real Estate also managed to show relative outperformance (IYT -9.0%; IYR -11.4%), while the Energy group (XLE) dropped an incredible -25.2% on the slowdown trade.

Trading in Week 42 of 2008 will be influenced by Inflation, Retail Sales, Beige Book and Jobs readings on Wednesday and Thursday, and Housing data on Friday, not to mention Options Expiration that same day. Market watchers will also closely monitor developing rumors of the demise of Goldman Sachs and/or Morgan Stanley, progress in the credit arena, estimates of residual Lehman/Washington Mutual CDS counter-party fundraising needs, and any related global coordination efforts announced at this weekend's G7 meetings. These last two weeks have represented new statistical territory in many respects (take a gander at those RSI's below), and while it maybe asking alot, be prepared for anything.

A glossary of Weekly Rewind terms and statistics has been posted here for your reference. Enjoy the weekend.

Never Investment Advice

1 comment:

Jeff Pietsch CFA, Esq said...

I have added mention of the LEH CDS auction last week, which I had initially neglected.