Tuesday, February 24, 2009

A Long-Term Look At the Markets

From the WSJ:

A slide in small-capitalization health-care and energy stocks pushed the Russell 2000 index below 400 for the first time since the bear-market lows of November.

For the session, the Russell 2000 index of small-capitalization stocks lost 16.38 points, or 4%, to 394.58. The Russell has fallen six days in a row. The last time the Russell closed below 400 was Nov. 20, when it ended at 385.31.

Because the Russell 2000 is composed of smaller companies that rely on growth instead of an existing client base, the index is a great proxy for risk. And right now people are running from risk in a big way. Here is a long-term chart of the IWM -- the ETF that tracks the index.

The chart uses monthly bars. Notice that prices are currently in the same price range as the 2003 - 2003 market bottom. In other words, we're essentially back to where we started. The only good thing on the chart is the decrease in volume over the last 4 months. This tells us that few people are dumping shares.

Notice the SPYs have formed a double top with the first top occurring in 2000 and the second occurring in 2007. Also notice that price wise we're now moving below the 2003-2003 price levels. Like the IWMs, the one good thing with this chart is volume is dropping off over the last few months indicating fewer people are selling.

From the WSJ:

Financial markets shuddered Monday with the Dow Jones Industrial Average falling 3.4% to 7114.78 -- or nearly half the peak it hit just 16 months ago -- even as the Obama administration tried to quell fears about the viability of major U.S. banks.

The decline in the stock market was unusually broad and went well beyond the jittery financial sector, with technology and other economically sensitive categories driving major indexes to their lowest closing levels in more than 11 years.

Notice the Dow is at it's lowest levels in over 10 years. But like the other charts, notice that volume is down over the last few months again indicating a declining number of sellers.