Sunday, August 2, 2009

July 2009 Rewind - Moon Shot

To help celebrate the fortieth anniversary of mankind's first steps on the moon, equity markets did a moon shot of their own. Alright, better-than-expected earnings and economic reports may have led us one small step in the right direction.

Last month, the S&P 500, Dow Jones Industrials and NASDAQ 100 cash indices recorded rarified performances of +7.41%, +8.58% and +8.54%, respectively.

It seems like a distant memory with respect to the early downside now, but really it was a bit of a Jekyll & Hyde month -- starting with talk about the need for more governmental stimulus and a prospective head and shoulder (H&S) pattern before the sudden reversal to the best July for the Dow and S&P500 since 1989 and 1997, respectively. In fact, since a brief peak below that well observed H&S, we have seen nothing but up.

News flow ranged dramatically from the worst unemployment numbers in 26 years, GM's emergence from bankruptcy, CIT threatening bankruptcy only to have consortium bridge financing offered, to improving home sale, gross domestic product and other economic reports, and a very high ratio of earnings beats (71%).

Sector-wise, the reflation/risk trade was back on with Materials (XLB) and Consumer Discretionary stocks (XLY) leading the pack. Style-wise, Small-Cap Value (PWY) stocks were again the biggest winners. While most trader's aren't expecting a major pullback ahead, after a four-and-a-half-month +46% giant leap off the bottom, a slowing in the pace of advance would appear to be in order for the month of August.

Sentiment: Positive
Volatility: Narrow (VIX 23-27)
Direction: Strongly Higher

[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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