Sunday, November 23, 2008

Weekly ETF Rewind - Week 47 (11/21/08)

(Click Image to Enlarge/ Glossary)

A market that remains in "hyper speed" with an ever obvious bias to the downside left the indices at four week lows after a major range breakdown to levels not seen since 1997. This on what can only be kindly termed awful jobless claims and depressing "Big Three" Auto Exec testimony before Congress -- desperately seeking survival capital, but without an articulated plan (WSJ - Automakers Sent Home). A mild recovery then ensued late Friday on "news" of the the appointment of Timothy Geithner as the Obama Administration's Treasury Secretary (ABC - Stocks Soar). By the end of the week, the S&P 500 (SPY) finished down about -8.2%.

To briefly explore our "hyper speed" environment, it is often said among traders that, "volatility begets volatility." Once volatility works itself into a system, it becomes amplified and takes time to work its way out. Statistical economic models such as GARCH and its mouthful-brethren attempt to describe and predict such behaviour.

From a technical trader's perspective, I find it instructive to look back just one day to Thursday's oversold conditions, as highlighted in this MarketRewind blog. Compare the Price Index readings to the one's posted above, and imagine how self-reinforcing and amplifying automated models that fade (trade against) extremes are in environments like this. Add a dash of retail emotion after staggering losses to on-going institutional deleveraging, and tremendous economic and political uncertainty, and it's one volatile brew.

Trading signals that used to take days or weeks to arise are now commonplace intraday. The movement becomes like a spring action, taking time to self attenuate. So too will this marketplace find its center in good time. Meanwhile, as we head into this holiday shortened week, the VIX remains at an abnormally high 73, and, while less predictive in this environment, bullishly stretched above its short-term moving average.

After Friday's positive swing, most of the tracked ETFs are back in neutral short-term territory, with the exception of Healthcare (XLV) and Agriculture (DBA), which remain heavily oversold. The Precious Metals (DBP) ETF, on the other hand, is now very overbought.

Economic releases for Week 48 of 2008 feature Housing Data, Preliminary Q3 GDP, Personal Income and Jobless Claims, among others as follows:

Enjoy Your Weekend and Thanksgiving Holiday!


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1 comment:

Anonymous said...

What you just said. When day traders like me start to make what swing traders normally make something is really out of whack. This is my best year trading ever. It figures that I finally make it big just in time for Armageddon.

J