Marketview: Financial Sector Rally (XLF), Consumer Staples (XLP), Utilities (XLU) Stall

• Posted by DynamicHedge
• on August 29th, 2011

The market held its collective breath for the Jackson Hole speech and decided it was was risk-on, snapping a four week losing streak.  Early in the week CDS spreads for $BAC were blowing out and Warren Buffet took a play right out of 2008 by mading a big investment and giving the market a much needed vote of confidence.  I remember the last time Buffet made a big bet on financials when he did the $GS deal.  Yes, it marked a short term bottom, but the market continued to sell off for months afterwards — something to consider.

Winners: $C, $BAC, $USB, $BA, $WY, $HON

Losers: $HNZ, $WAG, $PM, $EXC, $ETR, $AEP

Financials were among the best performers and consumer staples and utilities among the worst.  Some of the strength in the winners list is short covering and some is cash is rotating out of the safety trade and into more risky assets.  Money managers are feeling limber and don’t want to look like fools if this sell off was a 1998 redux.

Many are speculating that if the economy is weak in September we’ll get a QE3 announcement after the extended FOMC meeting.  Of course, if the economy is strong, then there’s no need for another intervention.  Bernanke feels that he’s covered either way.  We’ll see how the market reacts to this “win-win” scenario and the constant threat of intervention.  Friday of next week is Non-Farm Payrolls and how we trade around that report should give some insight into the coming weeks action.  At this point, it definitely feels as though we trade higher before we go lower.

I hope everyone in NYC is doing okay after the storm.

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