Sunday, November 30, 2008

November 2008 Rewind - The New Hope

After two months of significant declines, many investors may have believed that November would provide a post-election reprieve. If so, their hopes were dashed as the severity of the global economic crisis revealed its mainstreet connections and US equities posted their third consecutive month of declines and eighth month of losses for the year.

This November, the S&P 500, Dow Jones Industrials and NASDAQ 100 cash indices closed down -7.48%, -5.44% and -11.17%, respectively. Year-to-date, that left the indices down -38.96%, -33.44% and -43.13% from their respective 2007 closes. Even so, those final levels mask the extent of losses experienced intramonth when the S&P 500 traded at eleven-year lows.

Sentiment for the period was characterized by an evolution from systemic concern to economic panic, featuring major automotive and home sales declines, cross-industry layoffs, profit losses and outlook reductions, and a series of dismal economic reports indicating multi-decade slowing and unemployment topping 6.5%.

Matters were only made worse by depressing Big Three Automaker testimony before Congress on a failed bid to seek $25 billion in loans, major internal changes to the workings of the planned TARP rescue efforts, and a near miss on Citigroup's survival.

Similar to October, however, the final sessions of the month saw a major reversal of epic proportions on extreme oversold technicals and a modicum of economic leadership offered by the President Elect.

Style-wise, Mid- and Large-Cap stocks outperformed Small-Caps, while Sector-wise, Consumer Staples and Energy stocks greatly outpaced all others, especially Financials in spite of their outsized month-end recovery. With many technical indicators once again suggesting short-term overbought conditions, The New Hope among traders for December, is that longer-term oversold readings, positive seasonality and continued responsiveness in the credit markets will provide equities with a holiday boost into the new year.

Sentiment: Negative
Volatility: Extreme/Historic (VIX 47-81)
Direction: Down

[Click to Enlarge/ Additional ETF Analyses Posted on Market Rewind]

The Style-Box was calculated using the following PowerShares™ ETFs: Small-Growth (PWT), Small-Value (PWY), Mid-Growth (PWJ), Mid-Value (PWP), Large-Growth (PWB), and Large-Value (PWV). The Sector-Ribbon was calculated using the following Select Sector SPDR™ ETFs: Materials (XLB), Industrials (XLI), Energy (XLE), Staples (XLP), Discretionary (XLY), Financials (XLF), Technology (XLK), and Healthcare (XLV). The Standard & Poors 500, Dow Jones Industrial Average and NASDAQ 100 may be traded through ETF proxies, including the SPY or IVV, DIA and QQQQ, respectively.

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