Rally Winners

The S&P 500 is up a little more than 5% over the last 3 days.  Below we highlight how the index's ten major sectors have performed since the start of September, along with sector performance during the prior pullback from 8/9 to 8/31.  Unsurprisingly, the sectors that were down the most during the pullback are up the most during the rally.  Industrials, Financials, and Technology got hit the hardest in the back half of August, and they have bounced quite a bit this week.  Consumer Discretionary is the one sector that outperformed (slightly) during the pullback and is also outperforming over the last three days.  The defensives -- Consumer Staples, Utilities, and Telecom -- all held up well as the market fell in August, but they're only up modestly on the bounce.

The same holds true on an individual stock basis.  Below we have broken the S&P 500 into deciles (ten groups of 50 stocks) based on stock performance during the pullback from 8/9 to 8/31.  As shown, the 50 stocks that held up the best during the pullback are only up an average of 2.7% since the start of September.  The 50 worst performing stocks from 8/9 to 8/31 are up an average of 9.4% since 9/1. 

Below are the 30 stocks that have done the best over the last three days.  As shown, Office Depot (ODP) is up the most with a gain of 17.60%, followed by Nordstrom (15.18%), Jabil Circuit (14.44%), and E*Trade Financial (14.15%).  Other notables on the list of winners include SanDisk (SNDK), Harley Davidson (HOG), Monster Worldwide (MWW), Amazon.com (AMZN), and Broadcom (BRCM). 

Comments

[theyenguy]

Yes, as you relate: "The sectors that were down the most during the pullback are up the most during the rally. Industrials, Financials, and Technology got hit the hardest in the back half of August, and they have bounced quite a bit this week. Consumer Discretionary is the one sector that outperformed (slightly) during the pullback and is also outperforming over the last three days."

Currency traders rallied the major currencies, DBV, a stunning 6.0%, for the week ending September 3, 2010; taking them back to the middle of a broadening top pattern going back to October 2009. And they rallied the developing currencies, CEW, 1.1%, taking them back to the middle of a broadening pattern going back to November 2009. Thus the currency traders reset both currencies and stocks for falling.

The ratio of major currencies, relative to developing market currencies. DBV:CEW, rose a breathtaking 6.1% today. In just one day, the ratio of major currencies relative to developing currencies, was brought back to its pre European Sovereign Debt Crisis level. The chart shows today’s action “burst the ratio up” from a head and shoulders pattern and “took the ratio up and out” of a consolidation triangle.

The currency traders action gave birth to a rally in those stocks that had been sold off heavily since April 26, 2010: the bloating currencies rallied the most risky and shaky of stocks and ETFs.

The action of the currency traders in calling the major currencies higher has reloaded and restrengthened the ability of yen carry trade investing to unleash a severe bout of yen carry trade disinvestment. And the sharp sell off in US Government bonds portends the systemic risk of sovereign debt default by the United States coming from a failed Treasury auction, which would send bonds of all types lower, stop the funding of social program, as well as eliminate the funding of the mortgage GSEs, and create a liquidity evaporation where the Government would have to step in and be the sole provider of money, banking, credit and lending.

World stocks, ACWI, rose 3.7% for the week; taking them up, but below support of early November 2009. Emerging market stocks, EEM, rose 3.8% for the week; taking them back to them back to the middle of a broadening top pattern going back to January 2010. The emerging market stocks relative to the world stocks, EEM:ACWI, shows the emerging markets to have better relative value to than the world stocks.

Yet the overall worth of stocks, as seen in this relationship has fallen following the peaking out of the 30-10 Yield Curve, $TYX:$TNX, on August 11, 2010 which came as a result of the Federal Reserve Chairmans announcement of August 10, 2010 of the purchase of mortgage-backed securities.

Then on August 27, 2010, the Federal Reserve Chairman stated the possibility of an even larger purchase of debt. This caused the bond rally in US Treasuries, that began April 6, 2010, to fail September 1, 2010, sending bond prices lower and interest rates higher.

The safe haven rally in debt that began with the onset of the European Sovereign Debt Crisis is over. Investors see Mr Bernanke’s plans as monetization of debt; and have gone short US Treasuries, especially the longer out ones such as the Zeroes, ZROZ; the chart of the Zeroes, shows three black crows, resulting in waterfall loss of value.

I present a link to my Stockcharts.com micro chart site of a listing of ETFs to sell short and ETFs to buy long for a debt deflationary bear market.

Personally I do not invest in any stocks, ETFs or bonds, I am invested in gold bullion as I believe it will be hand during the soon coming credit crunch.

[Mike]

Yes, the defensives are up only modestly on the bounce, but the utes and telcos are net positive sectors for the period.