Sector Rotation and Performance in January

Feb 4, 2009: 3:31 PM CST

January did not get 2009 off to a great start.  Let’s break down the S&P 500’s 10% loss by sector and see what clues the Sector Rotation performance in January might be offering us.

Sector Rotation (AMEX Sectors) absolute performance in January:

Sector Perf

We’re seeing a negative picture across the board – not one major Sector increased in value in January.  Financials lost almost 30% while the ‘best’ performer was the Utilities which managed only to lose 2%.  We saw the biggest hits in the two key sectors that will be critical for any sort of recovery – Financials and Consumer Discretionary/Retail.  I cannot underscore how bad a sign this is for the broader market.  We actually saw Industrials underperform Consumer Discretionary which adds to the negativity.

The “Defensive” sectors held up the best in terms of Health Care, Utilities and – to an extent – Consumer Staples (which lost almost 10%).  This is absolutely the opposite picture you’d want to see to be bullish.

Let’s switch from absolute returns to performance relative to the S&P 500.

Sector Rotation (AMEX Sectors) Relative performance in January:

Relative performance

Again, the Sectors that outperformed the S&P 500 by the largest margin were the “Defensive” sectors of Health Care and Utilities.  Surprisingly, Technology and Energy outperformed the S&P 500 but by only 4%.

The Financial Sector underperformed by 15% – a devastating development.  Check out some stocks such as Regions Financial (RF) which notched a negative close almost every single day in January (falling from $9 to $3 per share in a single month).

Keep watching Sector Performance, as it should give us clues to where we are and where we’re likely to be headed.  Look for any signs of strength in Financials and Consumer Discretionary.  Until then, talk of the word “Bottom” is premature.

For now, I can see no hope for the bulls with these results.

Corey Rosenbloom
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NewsFlashr Weekly Links

Feb 4, 2009: 1:22 PM CST

Here’s the latest update from me as the Editor of the NewsFlashr Business Blog “Editor’s Choice” page.

Barry Ritholtz provides us with a graph detailing the main Sectors in the S&P 500 and notes their performance in January. Worst January Ever. Also, he summarizes an article from Reinhart and Rogoff that states to “Expect a Prolonged Slump”.

Dr. Steenbarger provides us a list of traits shared by Emotionally Intelligent individuals and relates that to trading the markets. Strengths of the Emotionally Intelligent Trader. A related post – Taking Heat on Your Trades.

Charles Kirk interviews Michael Panzer, who wrote Financial Armageddon which has been gaining attention thanks to its predictions of a large part of the current financial crisis. 10 Questions with Michael Panzer

Market Folly links to, and provides commentary on an interview with George Soros, who describes his experiences in 2008. Interesting. Soros Portfolio from 2008. Also, Market Folly posts links to Hedge Fund Investment Letters.

Rob Hanna reveals some research he conducted recently which address 2% overnight gaps in the market. 2% Gaps Revisited. Also, 2% Gap Ups Revisited.

Wall Street Nation provides a link to a 54 minute video of Nassim Taleb explaining in detail his arguments in the popular book The Black Swan. Taleb Explains Black Swan (Video link)

A Dash of Insight provides us an update on key ETFs and provides a nice graph displaying the performance. ETF Update.

Zignals shares various graphs and charts that seek to answer the question “Where Are We in the Economic Cycle?”

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15 minute Rounded Reversal in the DIA

Feb 3, 2009: 3:15 PM CST

I wanted to point out a potentially significant structural change in price that developed today before the close.  We have a confirmed Rounded Reversal on the 15-minute chart of the DIA which is setting up confluence support.

DIA 15-min chart:

DIA Rounded Reversal

Rounded Reversals can be significant because they highlight a clean shift in the balance between supply and demand (sellers and buyers).  As such, we have a confirmed up-trend in the 15-minute chart after coming off a positive momentum divergence and breaking above support via the 20 and 50 EMAs, which are now crossing bullishly at the time this chart was captured (1 hour prior to Tuesday’s close).

It’s a counter-trend retracement swing, but it’s important to note that the reversal is coming off the 800 index level low in the S&P 500 which is proving to be formidable support (the chart above is that of the DIA – Dow Jones ETF).  Any bullish short-term bets are off if we break the current support level, and that of $78.50 in the DIA above, but for now, it appears that the short-term structure has shifted to the upside.

To recap:

Price formed a new low late February 2nd on a large positive momentum divergence

Price has broken above both the 20 and 50 period EMAs

The 20 period EMA is currently crossing above the 50 EMA, setting up the ‘confluence cradle’ trade at $80

Price has completed both a higher high and higher low, officially reversing the 15-min trend.

The 3/10 Momentum Oscillator made a new high along with a new price high, suggesting higher prices are yet to come.

Thus, we have confirmed an official “Rounded Reversal” Trend Change.  However, there’s EMA resistance overhead on each of the Daily Charts of the key Indexes, so don’t get too excited yet.

Corey Rosenbloom
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Rounded Reversal in Crude Oil

Feb 3, 2009: 11:36 AM CST

Crude Oil prices, as seen by the $WTIC, have found significant support near $40 per barrel and may be forming a rounded reversal pattern on the daily chart.  Let’s see this development.

Crude Oil ($WTIC) Daily:

Crude Oil

Remember that $40 per barrel was significant resistance in 2000 and 2003, which was broken in 2004 that set the stage for the powerful rally that took crude near $150 per barrel – giving most Americans gasoline prices greater than $4.00 per gallon.

Crude Oil has fallen significantly from that level and has retested the $40 support level, breaking it gently in late December.  Otherwise, price has found support at this level (blue line).

What’s happening now is two things.  First, A multi-swing positive momentum divergence has been developing since November which could be showing either building strength in buyers or weakening strength in sellers.  Divergences often precede trend reversals but clearly are not 100% accurate.

Second, price itself appears to be forming a “Rounded Reversal” type pattern as price gently heads to new lows and then curves upwards in an arc to complete a gentle, relatively pain-free (no spikes) trend reversal.  Price could form a type of mirror-image of the prior decline… but to the upside.

We’ll know this will become the dominant pattern if we break above $50 per barrel any time soon, which would put price above the flat 20 and 50 day EMAs, clearing the EMA resistance.  There would be Fibonacci resistance overhead, but let’s focus on the EMAs for now.

Of course, if price broke the December lows beneath $35, we would know this pattern and structure failed.  It’s good to know exact price points that will prove your analysis right or wrong, which allows you to set targets, entries, and stop-losses.

Whether or not we do find a reversal here, the risk-reward is clearly skewed to the buyers, making it the cleaner position.  If you enter here ($40), your stop would need to be beneath $35 but your target could be upwards of $50, $60 or greater depending on your conviction and how far price does travel if it reverses (of course, use different numbers depending on the ETF you trade, be it USO or a leveraged fund).

Use your own analysis and see if you find additional insights in the price data itself (perhaps with other indicators, etc).

Corey Rosenbloom
Afraid to

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Conflicting Intraday Performance

Feb 2, 2009: 10:31 PM CST

Today marked a very rare and interesting outcome in the major US Equity Market ETFs:  QQQQ rose 1%, SPY was unchanged, and the DIA fell 1%.  Let’s look at this and try to see what happened.

Intraday Percentage Performance SPY, DIA, and QQQQ:


The chart is a little off to account for the gap.  The day started with an overnight gap down in all indexes which was filled quickest in the QQQQ (NASDAQ ETF) and then by the SPY (S&P 500 ETF).  The DIA (Dow Jones ETF) never actually filled the gap – it fell about 15 cents shy.

In the Dow, the worst price performer was MMM which fell $3.00 or 5.70%.  The worst percentage loss came from Bank of America which lost 8.97% today ($0.59).  Remember that the Dow is a price-weighted index, so dollar values carry more weight than percentage factors.  See my previous post-link “Distortion in the Dow Jones.

Technology stocks outperformed today which helped boost the NASDAQ, with Microsoft (MSFT) gaining $0.72 or 4.21%.  The best NASDAQ 100 dollar performer was the Apollo Group (APOL) which increased $4.65 or 5.71%.  Intel posted a 5.43% gain as well.

The S&P 500 tends to balance the Tech-heavy NASDAQ and the Blue-Chip heavy Dow Jones, which is exactly what we saw today.

I’ve actually never seen a day where the NAS was up 1%, S&P balanced with a zero gain, and Dow losing 1%.  That’s quite a wide spread between key indexes that are expected to perform roughly in line.  It shows that things are a little more difficult than they used to be and that we should be using more caution and selectivity in our trading.

Corey Rosenbloom
Afraid to

I will be attending the Orlando Money Show later this week.   Email to meet-up if you’ll be attending as well.  I will continue posting while on travel.

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