S&P 500 826.84 -4.81%
DJIA 7,850.41 -5.20%
NASDAQ 1,534.36 -3.60%
Russell 2000 448.36 -4.75%
MSCI Emerging Markets 23.95 -2.43%
Unattractive Numbers and Mind Games:
More of the same action so far this year. Ongoing weakness in the economic and market cycle resurfaces, while lacking sustainable reactions. Lots of noise while lacking concrete data points. Again, a speculative environment with extra sensitivity toward headline items and shorter holding periods. This recent market pause can be attributed to a heavy focus on pending policy decisions and uninspiring earning results. In addition, participants remain too skeptical to commit further capital. In terms of trading characteristics, the dominate theme is based around daily swings. Simply, a reflection of jittery behavior of global assets.
"With so many market participants trading at intraday and swing time frames--and managing their longer-term trades with shorter-term adjustments--by the time the market has moved in one direction for several days, the majority of players are already on board and leaning for further movement. When the market fails to go their way, they have to unwind their positions, adding to the reversal movement" (TraderFeed, Brett Steenbarger. Feburary 2009)
The inevitable cycle peak generated in credit markets is playing itself out. As new daily concerns emerge, the core of this consolidation phase stems from the previous bullish run. At times, it's easy to forget recent history perhaps driven by human psychology. In other words, "downtrends" are painful but are to be expected. As for plans for further intervention, natural flow of markets remind us that turnarounds require additional time. Nonetheless, growing impatience and lack of confidence point toward a sideway to down market response.
Appealing arguments for fundamental based stock buying is not too convincing (at least on a mass level). The risk of making a directional bet has not showcased to be profitable. The S&P 500 is approaching its lower end 3 month range, which stands near 800. Perhaps, breaking below this point triggers negative momentum, in turn leading to sell-offs. One can pinpoint that the psychological impact which set up a scenario of retesting October 2008 lows, more than the quantitative effect. On the other hand, Gold and Silver are showing noticable strength. For example, Silver is up over 62% since October 28th. A profound statement of fear in paper assets as the demand for safety increases.
Clearly, it has been challenging to find trending groups in a highly correlated markets. Nonetheless, Healthcare and Technology appear to be the leading groups for the next upside cycle move.
"On a sector basis, Financials have the weakest breadth with just 16% of stocks above their 50-days. Health Care, Energy, and Technology are the three sectors that currently have more than 50% of stocks above their 50-days." Bespoke Investment Group (February 13, 2009)
Macro points:
Crude: [$37.50] Since mid December a narrow range forming between $36 and $46. These levels indicate a neutral view that's not indicative of a recovery.
US 10 Year Yield [ 2.88%] Improvement in yields following a sharp rise in the past few weeks. 50 day moving average is above 2.50%, suggesting that a first wave of recovery is underway. Next key level stands around 3%.
Gold [$935.50] A noticeable uptrend that began in October 24th which started the outperformance of Gold especially against the dollar.
DXY- US Dollar Index [86.04] Sideway pattern continues at current levels. Momentum is positive as reflected in key moving averages.
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