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September 17, 2007

Review of Recent Market Action

Periodically when the market is in an unusually volatile period I like to look at a performance of a wide variety of indices in order to see if there are any anomalies. This time I decided to look at the recovery off the August 16th intraday low. You will remember that was the day where the DJIA reversed a 350 point intraday loss to close down just 16 points. Overall, I don't see any trends in this data that would make me want to trade but there are some notable figures.

Since that time, most US market cap and style indices have recovered by a similar amount ranging from 7% to 9%. The NASDAQ and large cap growth, as measured by the iShares Russell 1000 Growth ETF (IWF) lead the way with recoveries of 9%. The Russell 2000 has been a laggard rising just 6.4% off its low. The worst recovery is in the Russell 2000 Value ETF (IWN) which has bounced just 5.4%. The heavy concentration of financials in IWN probably accounts for the weak recovery.

The divergences in performance have been greater when looking at returns in international indices. The EAFE has rebounded by 16% and emerging markets, as measured by the MSCI Emerging Markets ETF (EEM) has risen 23%. These two markets were the laggards form the July 19th highs to the August 16th lows so the outsized gains off the lows is not wholly unexpected. What might be surprising, however, is the fact that EEM is down just 2.6% since July 19th, the best performance/smallest loss of any of the indices I monitor. The DJIA, S&P 500, and NASDAQ are down from 4% to 4.5% since the high.

One other interesting return profile has been in Japan. As measured by EWJ in order to use prices during US trading on August 16th, the Japan has recovered 1.8% off its low. Using the Nikkei 225, Japan is down 11% from the July 19th high, the worst performance of any of the indices since that date.

Posted by Steve Birenberg at September 17, 2007 01:07 PM in Market