Market Review | Nov 17, 2008

Weekly Results:

S&P 500 873.29 -6.20%
NASDAQ 1,516.85 -7.93%
Russell 2000 456.52 -9.74%
MSCI Emerging Markets 22.64 -7.13%

Overall investor anxiety has yet to settle especially with unknown policies ahead. This creates a challenging atmosphere for identifying long-term ideas. Interestingly, there is no shortage of headline materials at this stage of the consolidation phase. Key discussion points include reactions of G20 meetings, senate testimonies and implementations of existing bailouts. Most participants are watching events more than capturing sustainable trends. A rise of 18.20% in (VIX Volatility Index) partially tells the story of turbulent trading patterns.

Clearly, it's hard to deny established downtrend given the violent nature of market moves. Even pure fundamentalist are leaning towards technicals for some answers. Unfortunately, markets appear too correlated and are moving in a similar direction. Much attention is being paid to fallout results more than to promising outlooks. Although, some trading days remind us that expecting mean reversion can be misleading. That's serves as an ongoing lesson of this historical cycle peak. Simply, this dislocation of a non-trending and fear driven markets make new extremes appear like the norm. This is reflected across various asset classes ranging from Commodities to Real Estate. At this point, not many places to hide given risk aversion among most investors.. For example, money market funds have risen by 20.3% year-to-date.

Corporate liquidity is awful. Announced corporate buying was below $6 billion in each of the past seven weeks even though the S&P 500 plunged 24.6% in this seven-week period. Also, insider buying in the past two months totaled $3.4 billion, down 24% from $4.5 billion in the same period last year. The best-informed market participants are signaling that stock prices have further to fall. (Trim Tabs – November 17, 2008).

In this deleveraging phase, it takes time to restore confidence and accept new emerging themes. For optimist, making long bets has been costly since entry points. Similarly, rotational opportunities into other sectors are not quite clear. Simply, more patience is required to find attractive entry points.

MACRO LEVELS:

Crude [$57.04] Recovering from annual lows of $54.67. Oversold in the near-term, but downtrend established as defined by a break below $80.

Gold [$747.50] Several weeks of consolidation between $720-760 ranges. No signs of trend reversal, as the commodity peaked in March ($1011) and failed to make new highs in July 2008.

US 10 Year Yields [ 3.73%] Over two month of uptrend intact. A key support level developing around 3.65%.

DXY – US Dollar [86.36] New multi-year highs reached again this week at 88.14. This reinforces positive momentum from March lows for the index.

S&P 500 [873.29] Early signs of stabilization, as charts demonstrate a new range within 800-1000. Much attention will be focused on November 13th lows of 818.69. Interestingly, S&P 500 is few points away from previous cycle lows of 768.63 in 2002.
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