Gossamerby Vicky Brago-Mitchell
I was reflecting on the indices yesterday. First, I've had this particular perturbation regarding the DOW given the number of new entries, exits and extants. Due to the changing composition of this small indices, can it really mean anything on a technical basis for this reason? I'm concluding no; however, it does represent an emotional bellweather.
Second, the S&P which was heavily weighted toward financials has now lightened up considerably. I think the percentage was above 30%, and I saw an article (Bloomberg--in fact it was this article that clicked the gear in my head), that stated that it might go down to 12% weighting. If that is indeed the case (and I believe that it is), then how can historical views of indices (v. sectors) be very telling with respect to tops, bottoms and the big fat middle?
It's a bit of a rhetorical question, but one worth asking. While we had a bust in 2000/2001 with the internet stocks--our so-called dotcom bubble--the banking system had not been bitch stomped (yes, that is an ugly term, but I'll keep it). As NG notes in comments, we are in unchartered waters. And perhaps overall the market, regardless of sectors that have been causal in a market debacle, still behaves the same way. However, as a reasonable person, I have to believe that there are differences. I'm going to continue hold sector activity ahead of indices activity for my own market thinking.
I'm always leery of wholesale analysis of this crash v. that crash. I do believe that we are seeing the "credit event" of our lifetime. And I'm reminded of Armstrong's work on the subject of the 1929 crash. Specifically he notes that off-index debt in the form of bonds--from many countries--was a large cause. When I read that for the first time last year (and posted about it here), I was struck by the currently unfolding credit derivative market.
But....I'm straying too far from my point which is simply to be a little suspect of wholesale technical analysis of indices.
I did want to leave you with a chart on AXA--If the 200DMA falls.....