A Tale of 9 Markets
3/4/2007 9:04:41 PM
Dynamic Trading remains in SELL mode
As I reported Friday, there is an ongoing wave of "reduction of risk" trades, including a lot of unwinding of the yen-carry trade and a flow of funds into a few safe-havens such as treasuries.
As we all know, it started with a 10% decline in the China markets Monday night, amplified by Greenspan's statements that a US recession is a real possibility, fueled by a huge spike in volatility and perpetuated by a progressive Yen-carry unwinding and the sudden perception by startled investors that wow, there really is risk in the markets.
This weakening trend has continued over the weekend and the SPX futures are pointing down, making a weak open in the markets likely. The Yen has also continued to strengthen over the weekend. Let's see what happens this weekend, but the odds are with continuing weakness and volatility in the markets.
Sector Analysis: A + Tale of Nine markets:
The S&P 500 (SPX) is composed of nine sectors, which can be represented on a chart via the ETFs that track them. I'm attaching two such charts (scroll down) that show the percentage change for the SPX (the bold dark line on the chart) and each of the nine sectors, one 2007 year to date, one from late July, the beginning of the bull run that was spanked down last Tuesday. I'm not going to discuss each one today.
The XLB (basic materials) lead the way on both charts as the numbers we were getting until recently showed a goldilocks story and suggested a strong economy, but corrected the hardest last week, percentage wise, as economic data hint at a slowing economy that would hurt these companies. It still remains the best performing sector from August or YTD, but may be vulnerable to bigger corrections. Similar story with the consumer discretionaries (XLY) although it's been weaker in the short term on concerns housing the housing market would reduce spending.
The XLU, representing Utilities (typically paying nice dividends and considered a defensive play) corrected last week by a much lesser percentage. XLI (information tech) performed well since August, but has underperformed this year.
Financials (XLF) have taken a real hit in the short-term chart and it is down the most in 2007 of any sector, as sub-prime loan concerns and tightening credit requirements affect that sector. Energy (XLE) has been the worse performer in the longer term chart, as traders have been shifting out of oil and energy plays about that time to chase other investment.
That's it for now. Stay tuned.
The Dynamic Trader
As always, please email me with any questions, suggestions or comments: firstname.lastname@example.org.