Sector Watch: Who’s Leading the Turnaround?
January 23, 2008
The action in the stock market over the past two days has been impressive. While waves of selling sent prices sharply lower in morning trading, stocks were able to shake off early weakness and close the trading session well off the worst levels of the day. On Tuesday, the Dow Jones Industrial Average ($INDU) suffered a 128-point loss. However, it was able to close more than 300 points off the lows of the day. On Wednesday, the industrial average sank more than 300 points in morning action, but was able to close the day with a 300-point gain. While a lot of the late-day strength is probably due to massive short covering, some investors seem to be sifting through the wreckage and looking for opportunities in some of the sectors that have been hit the hardest during the stock market’s most recent decline.
On Wednesday, housing stocks led the market’s turnaround. The PHLX Housing Sector Index ($HGX), which tracks the performance of 20 different companies in the industry, hit a low of 122.70 and down 4.5 percent from its price level at the close of trading on Tuesday. However, the homebuilders caught a bid in midday trading and the housing index never looked back. It hit a high near 139 and up an impressive 13.3 percent from its worst levels of the trading session.
Financials also showed relative strength later in the trading day. Table 1 shows the difference between the highs and lows of various sector and market indexes. The PHLX Bank Sector Index ($BKX) is second on the list. It rose nearly 13 percent from its worst levels of the day. The Select Sector Financials (XLF) and the AMEX Broker/Dealer Index ($XBD) also saw big rallies off their morning lows.
Transport stocks saw reversals amid falling crude oil prices. The AMEX Airline Index ($XAL), which was discussed here in more detail last week (SECTOR WATCH: Airlines Take Flight on Merger Hopes), was losing altitude until midday trading. However, a broad market rally along with a 2 percent decline in crude oil prices gave the airlines a lift and they just kept flying. From the low to the high, the AMEX Airline Index rose 12.3 percent. The Dow Jones Transportation Average ($TRAN) gained 9 percent from its worst levels of the day.
Index | Symbol | % Between High and |
PHLX Housing Sector Index | 13.34% | |
PHLX Bank Index | 12.90% | |
AMEX Airline Index | 12.26% | |
Select Sector Financials | 10.47% | |
AMEX Broker/Dealer Index | 9.84% | |
DJ Transports | 8.98% | |
SIG Steel Producers Index | 8.65% | |
Select Sector Basic Materials | 8.63% | |
PHLX Oil Service Index | 8.45% | |
PHLX Gold Mining Index | 8.08% | |
AMEX Oil Index | 8.05% | |
MS Cyclical Index | 7.58% | |
Select Sector Energy | 7.37% | |
MS Commodity Related Index | 7.22% | |
Select Sector Technology | 6.34% | |
MS Biotech Index | 6.23% | |
Select Sector Industrials | 6.19% | |
Nasdaq 100 Index | 5.99% | |
Retail HOLDRS | 5.97% | |
Russell 2000 Small Cap Index | 5.96% | |
AMEX Natural Gas Index | 5.94% | |
PHLX Semiconductor Index | 5.74% | |
S&P 500 Index | 5.44% | |
DJ Industrial Average | 5.41% | |
S&P MidCap Index | 5.37% | |
Dow Jones Utility Index | 5.30% | |
MS Consumer Product Index | 4.19% | |
PHLX Defense Sector Index | 4.05% | |
AMEX Pharmaceutical Index | 3.91% |
Table 1: % Difference Between the Day’s Highs and Lows (Wednesday, January 23, 2008)
In terms of asset classes, large cap NASDAQ stocks saw the biggest reversal on Wednesday. The NASDAQ 100 Index ($NDX), which includes the 100 largest non-financial stocks that traded on the NASDAQ, rose 6% from its lows of the session. Small caps also did well, with a 6 percent difference between the high and low in the Russell 2000 Small Cap Index ($RUT) on Wednesday.
A day earlier, the financials led the market’s rebound on Tuesday. Table 2 shows the difference between the high and low of the day. The AMEX Broker/Dealer Index ($XBD) saw the biggest turnaround. It gained 10.4% from its lows of the day. Banks, retailers, and housing stocks also saw big reversals on Tuesday. Small caps, as measured by the Russell 2000 Small Cap Index, outperformed mid and large caps.
Index | Symbol | % Between High and |
AMEX Broker/Dealer Index | 10.41% | |
PHLX Bank Index | 10.17% | |
Retail HOLDRS | 9.01% | |
Select Sector Industrials | 8.55% | |
PHLX Housing Sector Index | 8.44% | |
Select Sector Energy | 8.19% | |
Select Sector Financials | 8.05% | |
Select Sector Basic Materials | 7.52% | |
PHLX Gold Mining Index | 7.12% | |
AMEX Oil Index | 6.78% | |
AMEX Airline Index | 6.11% | |
MS Cyclical Index | 6.05% | |
SIG Steel Producers Index | 5.96% | |
Dow Jones Utility Index | 5.38% | |
MS Commodity Related Index | 5.19% | |
Russell 2000 Small Cap Index | 5.11% | |
PHLX Oil Service Index | 5.05% | |
AMEX Pharmaceutical Index | 4.67% | |
PHLX Defense Sector Index | 4.66% | |
Select Sector Technology | 4.61% | |
Nasdaq 100 Index | 4.60% | |
PHLX Semiconductor Index | 4.49% | |
MS Biotech Index | 4.39% | |
DJ Transports | 4.37% | |
DJ Industrial Average | 3.94% | |
S&P MidCap Index | 3.86% | |
S&P 500 Index | 3.75% | |
MS Consumer Product Index | 3.16% | |
AMEX Natural Gas Index | 1.81% |
Table 2: % Difference Between the Day’s Highs and Lows (Tuesday, January 22, 2008)
The reason for the market’s rebound is related to expectations for monetary and fiscal stimulus, which might help the economy rebound in the second half of 2008. On Tuesday, the Federal Reserve announced that it had cut its benchmark ten-year Federal Funds rate by .75 points. Wednesday, the midday turnaround coincided with news that government officials were set to intervene and help some of the troubled bond insurers. Meanwhile, President Bush has been making headlines in the financial press lately with talk of an economic stimulus plan. Taken together, the action on the part of the government and Federal Reserve officials could potentially help the economy avoid recession. For that reason, many of the beaten down sectors that have been falling over the past few months due to fears about the credit markets and the economy—like banks, brokers, builders, and retailers—are now leading the midday market reversals.
Frederic Ruffy
Senior Writer & Index Strategist
Optionetics.com ~ Your Options Education Site
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