The Streak Ends!

Market Commentary: Equity markets continued their short-term downtrend this past week. However, they did so with such a vengeance that the intermediate-term trends also turned negative. The weekly see-saw market reversal pattern we have been following failed to extend its run, ending the streak at 14 straight weeks. This was just another example of how random events can take on the appearance of non-randomness and a gentle reminder that all streaks eventually come to an end.

Government bonds had a good week, but the vast majority of the move was confined to just one day (last Thursday) when the 10-Year Treasury yield dropped from 4.90% to 4.76%, which is where it sits today. The subprime debacle has created a huge cloud of uncertainty in the credit markets. No one knows for sure how widespread, or how contained, the problems really are. As a result, government issues are being treated as the only sure bet.

Sectors: Crude oil hit a new high today near $79 per barrel before reversing and ending the day on the downside. The bullish action in crude oil this week did not translate into gains for energy related equities, as the Energy sector got caught up in the global equity weakness. Although none of the sectors were spared from the selling that took place, their Relative Strength relationships remained pretty much intact. If there is an exception to that statement, it would have to be the Materials sector which dropped two levels in our rankings. The March support level for the Financial sector crumbled this past week, and Consumer Discretionary broke its support today. The Utilities sector is right at its March support while the remaining sectors have so far managed to keep themselves above their March lows.

Styles: Our style rankings accurately reflect the recent market action. The Micro-Cap segment has been one of the worst areas to be in, and this group has now broken below its March support level. None of our other “style” categories has taken out their support, but Small-Cap Value and Small-Cap Blend are getting close. Mega-Caps and Large-Cap Growth have held up the best.

International: International markets did not escape the carnage this past week, and many regions underwent more severe trauma than our domestic markets. Latin America, Pacific x-Japan, and other Emerging Markets took the biggest hit. They also staged above-average recovery attempts on Monday before heading back down again. Volatility was high in domestic markets this past week, but it paled in comparison to that of the various Emerging Markets. Japan jumped from the bottom to about the mid-point of our global rankings, while the U.K. slid down to grab the bottom spot.