Sunday, February 7, 2010

January 2010 Rewind - Foundational Cracks

In spite of a relatively decent earnings season, mixed economic readings, domestic political turmoil and an emerging sell-the-news mentality left cracks in the foundation of the ten-month old bear market recovery. This January, the S&P 500, Dow Jones Industrials and NASDAQ 100 cash indices finished down across the board by -3.70% , -3.46% and -6.41%, respectively.

Although the VIX (implied options volatility) set new post-crash lows, it likewise spiked heavily in the month's fourth week when General Electric (GE) missed earnings expectations and strong opposition was indicated for Federal Reserve Board Chairman Bernanke's renomination.

As shown below, Technology (XLK) and Materials (XLB) were the hardest hit by January's reversal of fortune (2009's biggest winners). In fact, only the Health Care (XLH) sector was able to eek out a small gain. With February's trade well underway, it seems clear that last month's poor performance was just the first shot across the bow as volatility remains on the rise while traders ponder the long-term consequences of the swap of private for public debt across the globe.

Sentiment: Mixed
Volatility: Low (VIX 18-27)
Direction: Down

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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