Saturday, January 03, 2009

More Indications of Risk Appetite in the Stock Market

My earlier post found signs of buying interest among the indicators that I follow daily; keeping on top of those indicators before each trading day via the Twitter posts is a nice way to quickly identify if the stock market is gaining or losing strength over time. The last five posts appear on the blog page under "Twitter Trader"; I typically post in the mornings (before the market open) and evenings (after the close). Alternatively, you can opt for a free subscription via RSS.

This post takes a longer-term look at the performance of several ETFs since the November market bottom: the S&P 500 Index (SPY); the Russell 2000 Index (IWM); the EAFE (Europe, Australasia, Far East) Index (EFA); the Emerging Market Index (EEM); Consumer Discretionary Stocks (XLY); and Consumer Staples Stocks (XLP).

What we see is that the riskier sectors that had been more beaten down during the market decline are now outperforming: small caps and emerging market issues. We're also seeing outperformance among consumer discretionary shares relative to consumer staples issues, as investors turn away from the more defensive sector and bet on economic recovery.