Market Review | December 8, 2008

Weekly Results:

S&P 500 876.07 -2.25% 
DJIA 8,635.42 -2.19% 
NASDAQ 1,509.31 -1.71% 
MSCI Emerging Markets 21.94 -3.94%

Grasping this moment:

A strange period, where short and long investors are uncomfortable. Equally unique is the a uniform relationships between markets. The past few months have witnessed high correlation  among asset classes. Nonetheless, cycle declines are part of nature. Now, we've reached a point where bad news is an accepted norm. In other words, all types of historical marks have been tested.  Usually, that's a bullish indicator given the excess of overselling.  For example, ISM index fell to 36.2 the lowest level since 1982. Meanwhile, Crude had its worst weekly performance since the early 90's. Increasing headlines showcase pessimism and sentiment data matches that point.

Plenty of unknowns:

Additionally, investors are attempting to figure out the  impact of government assistance. That serves as a wild card for risk assessment. It's reported that the bailout accounts for 60% of GDP.  Yet again, the lack of clarity in governments plan contributes to  growing uncertainty. Similarly, globally coordinated interest rate cuts have become a common theme. Now, there is a disagreement on timing a market bottom, but a unanimous agreement that things should get worse.  This past Friday, unemployment data confirmed and emphasized  the established economic weakness. This sets the stage for a Federal Reserve rate cut. Perhaps, that can fuel optimism and serve as the next key macro event. 

Trading Mechanics:

Trend following has narrowed to a shorter time frame. Perhaps, this is not the ideal way to manage money especially when majority of assets favor a  longer term outlook. Meanwhile, fundamental bets require patience for  calmer entry points. These factors partially explain the uncommitted capital that's on the sidelines. In other words, trendless and lack of conviction. Several factors lead to a system disruption such as hedge fund redemptions.

Connective Capital, a Palo Alto, California-based hedge fund, treated investors in its short strategy to an eye-popping 85 percent gain this year as its benchmark Nasdaq Index slumped 42 percent. Still, clients asked manager Robert Romero to return roughly 20 percent of their capital.." (Reuters -12-5-2008)

Levels:

The S&P 500 is holding above November lows of 741.02. From a technical view, any strength above those lows is positive. This assumes that the next round of selling is not too severe. As Crude trades near $40, it has one wondering if the next major support is closer to $20. At this point, even bears are reconsidering if the commodity is too cheap.  Interestingly, spike lows for US 10 Year Yields and Crude were tested on Friday.  On the other hand, Dollar strength is holding in as Gold remains in a tight trading range (712-800).

The positions and strategies discussed on MarketTakers are offered for entertainment purposes only and are in no way intended to serve as personal investing advice. Readers should not make any investment decision without first conducting their own thorough due diligence. Readers should assume the editor holds a position in any securities discussed, recommended or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any way, considered liable for the future investment performance of any securities or strategies discussed.