Marketview: Financial Meltdown Edition, Financial Select Sector SPDR (XLF), Health Care Select Sector SPDR (XLV)

It was another wild week with Monday marking the first trading session post S&P US debt downgrade — the $INDU settled down -635 points.  The post fed meeting announcement and subsequent volatility marked the bottom for the week.  We proceeded to rally from there, but not without considerable movement in the broad indexes.  Four of five trading days saw ranges larger than 400 points up or down and sometimes multiple times intraday.

Winners: $MON, $DD, $PFE, $JNJ, $MCD, $CL, $PG

Losers: $MS, $BK, $C, $BAC, $MET, $USB, $GS

In the winning column there’s a lot of what you’d expect to see: healthcare and consumer staples.  So what the hell is $MON and $DD doing amongst the best performers during hell week?  They’re giving you a nice relative value tell.  After months of underperforming, $MON might just be primed for some outperformance.  The $IWM is two standard deviations below the $DIA and the $XLU is two standard deviations above the $SPY.  Therefore, growth is oversold and safety is overbought, which is the perfect recipe for a short term oversold bounce.  The losing column is ALL FINANCIALS.  We’re going to have a very tough time putting together more than a short lived bounce with financials dragging on the indexes.

I’ve outlined my overall view in the previous post.  I don’t think we’re out of the woods in terms of selling but we should have a decent bounce from here.  I just don’t see sentiment overall turning for the better.  Especially going into September.



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