Weekly Risk Report 09/22/2008
It is amazing how small the movement in the Dow 30, S&P500 and Nasdaq Composite indexes were by week's end. If you'd been away for a week and didn't know about the crazy market fluctuations that had occurred during the week the indexes would tell you it was just "ho hum" activity.
Well, the week's bipolar breakdown surely caused some investors to search in their toolbox for their favorite Gut Wrench. By week's end there had been around 2500 new 52 week lows posted. The surprise was that there had also been well over 400 new 52 week highs also recorded. It's this sort of statistic that drives our Divergence index. It zoomed up into its own bearish territory for the first time this year. It indicates extreme market confusion about the near term future.
A bunch of stocks that usually don't trade much in a week's time also returned to active duty. This changed the Zeal component. You'll see that it is still closer to "bullish" even though it rose quite a bit this last week.
Speculation in the larger caps is nearly non-existent and in the smaller caps has moved to slightly bullish. So, when the week came to a close, nobody was "speculating" by our measure. Relative Valuation actually fell a bit for the week based upon a contraction of the short term Treasury coupon rate.
Overall, there may be a bit of data lag in the material we use. That could mean the Speculation component may also be bullish once the data stream catches up a bit. Even though the two IW measures are still both bullish, they're closer to Neutral than they've been. Also, it's rare that we have one component Bearish and another Bullish at the same time. So, I guess we could say we're cautiously bullish, realizing the market participants are in a high state of confusion.
Opinion on the economy seems to be shifting from the former idea that it was going to be a sector specific recession to a more general type of slow down. The reverse of "wealth effect" is being expressed as the reason. There are a lot of lose ends needing tying at this point but since the markets usually "lead" the true economics. While our cash reserves are not as deep as they were, we still have purchasing potential left. As the dust settles, we may see the stronger sectors harvesting some profit and refunding our overall reserves even while some lag behind. Sector rotation will remain SignalPoint's friend.
