As the three sector charts indicate (Industrials, Financials, Technology), whether you view this as a bull market correction or as a fresh bear market depends largely where you're invested. If you look at a long-term chart of the Russell 2000 stock ETF (IWM), you'll see that we've retraced the entire move up since early March. The S&P 500 Index (SPY) is well above its March levels. Not all market segments are behaving the same.If you look at five of the most highly weighted stocks within the XLK (technology) universe--MSFT, INTC, IBM, CSCO, and VZ--you'll see only the mildest of corrections.
A look at the five most highly weighted XLF (financial) stocks--C, AIG, BAC, WFC, and JPM--shows harrowing declines.
A number of consumer staples (XLP) stocks--PG, KO, and WAG come to mind--are proving relatively resistant to decline of late. Many consumer discretionary (XLY) issues--TWX and HD--are weaker.
There is a great deal of fear-based trading in the recent markets. We see huge flights to quality in the drop in 10-year Treasury yields, massive unwinding of carry trade (Yen strength, flight from risky assets), and sharp moves late in the day from participants unwinding positions. As noted earlier, we're also seeing considerable bearishness in the put/call ratios and extreme weakness in advance-decline readings.
That tells me that good stocks (and sectors) are being sold off with the bad, and that has me patiently looking for values. One of the places I'm looking is sectors (and stocks) that--even with massive selling--are holding their valuations, staying off my list of fresh 65 day lows.
This is not a monolithic bear market.
It just feels like it.
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6 comments:
Right on target, IMO, Brett, regarding it "being a bear depending on where you're invested."
In your opinion, what basically constitutes a true bear and how early could that best be designated?
Thanks!
Bert
Hi Bert,
FWIW, my own analysis suggests that we made a cyclical (4 yr) low in the June-July, 2006 period and started a fresh bull market thereafter. This, I believe, is a (significant) correction within the bull market and I expect (unconfirmed) Dow highs thereafter. Short, sharp corrections in bull markets are not uncommon, as in Oct. 1978, Oct. 1979, and Oct. 1997.
Brett
Great posts.
Are you a believer/follower of Fibonacci Retracements?
What I've noticed in this drop is that this correction has not had a 38.2% retracement bounce. (We got very close on Tuesday, July 31, 2007).
Do you have any stats regarding the longest drop we've had without at least one 38.2% retracement bounce?
(and how does one research these statistics on their own?)
Here are a few charts with Fibonacci Grids on the $SPX. I was expecting at least a 38.2% retracement bounce but the market looks very oversold and weak. Only 16% of stocks in the S&P 500 are above their 50 day moving average!
http://techfarm.blogspot.com/2007/08/s-500-chart-update-after-big-drop-today.html
Hi Techfarmer,
Thanks for the link. I've never researched Fib retracements, so unfortunately don't have any data one way or the other.
Brett
"FWIW, my own analysis suggests that we made a cyclical (4 yr) low in the June-July, 2006 period and started a fresh bull market thereafter."
Can this happen without at least a 10% correction in the S&P 500. The S&P 500 has not had at least a 10% correction since 2003. This would be my argumnent against July 2006 being a 4 year cyclical low. Does my thinking have any credibility in your mind??
Hi BeingPossibility,
The last four yr low that didn't make the 10+% plunge was 1994, which was also a low volatility environment. It's the surge in money flows off the summer, 2006 lows that led me to believe that a new bull market had started.
Brett
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