Sunday, March 1, 2009

February 2009 Rewind - Economic Fear & Loathing

To most of us, it hardly seems conceivable that, after a year that left the S&P 500 down nearly 40%, we could be down another 20% in just two months time -- but such is the state of our markets. This February, the S&P 500, Dow Jones Industrials and NASDAQ 100 cash indices fell -10.99%, -11.72% and -5.36%, respectively. For 2009, that leaves the indices down a respective -18.62%, -19.52% and -7.81%; reportedly the worst start to a year for the Dow over its entire history.

News flow during the month was relentlessly negative, focusing on tepid responses to the signed Stimulus Bill, various Treasury financial-sector policy trial balloons, the new Administration's agenda-laden budgetary plans, and ultimately the pseudo-nationalization of Citibank. In addition, we faced a parade of horrid economic data, featuring the highest unemployment seen since 1974 (7.6%), and the worst Gross Domestic Product reading since 1982 (-6.2%). Interestingly, the VIX (implied options volatility) remained in a relatively narrow range given the extent of the declines and the otherwise palpable levels of economic uncertainty, fear and -shall we say- loathing.

Sector- and Style-wise, it was all a matter of degree with large losses posted across the board. With markets down over 50% from their peaks, the bulls completely demoralized, and forward expectations increasingly easy to beat, one has to wonder how much longer this ugly bear can survive. Meanwhile, traders have to be prepared for the possibility that the lower limits of the four-month trading range will continue to be tested, if not broken, on this strong downward momentum.

Sentiment: Negative
Volatility: Rangebound(VIX 41-53)
Direction: Negative

[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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