Michael Panzner
New York - http://www.financialarmageddon.com/

Michael J. Panzner is a 25-year veteran of the global stock, bond, and currency markets who has worked in New York and London for such leading companies as HSBC, Soros Funds, ABN Amro, Dresdner Bank, and J.P. Morgan Chase. He is the author of Financial Armageddon: Protecting Your Future from Four Impending Catastrophes and The New Laws of the Stock Market Jungle: An Insider’s Guide to Successful Investing in a Changing World. He is also a columnist at TheStreet.com’s RealMoney paid-subscription service. He is a New York Institute of Finance faculty member specializing in Equities, Trading, Global Capital Markets and Technical Analysis and is a graduate of Columbia University.

Is the stock market more volatile than in the past? Many investors believe so based on the sharp intraday swings of recent days.

However, it really comes down to how you define volatility. If you look at the median monthly high-low ranges (in percent) for the S&P 500 index going back to 1980, and compare those averages to this year's values, only one month stands out so far.

In January, the range between the high and low was 13.70% (of the average of those two numbers), almost double the 7.60% monthly median going back 28 years.

The high-low range for this year's first month also topped previous highs of 13.09% in January 1987 and 12.62% in January 1980.

In Gold: play the shares, not the metal?, I noted the apparent disconnect between the performance of mining stocks and gold and suggested that the shares may represent a better bet in the near term.

However, there seems to be an even greater disparity in another part of the commodity universe. Over the past 10 months or so, crude oil prices have soared by more than 70%, while energy sector shares have only risen about 5%.

To be sure, there are valid reasons why the stocks might not always track moves in the underlying commodity.

For one thing, the largest energy firms (with the heaviest sector weightings) have fully integrated operations (e.g. they explore for, pump, refine and market petroleum-related products), so a rise in the price of crude oil may not flow directly through to their bottom lines.

As of Monday's close, the S&P 500 SPDR exchange-traded fund (AMEX: SPY) was down 12.25% for the year, buffeted by continuing turbulence in global credit markets and concerns over future growth prospects.

However, the relative performance of the major sector ETFs paints a far more confusing picture.

On the one hand, strength in materials and industrial shares, and weakness in the traditionally defensive health care sector, suggests that investors are not too worried about the outlook.

In contrast, strength in the consumer staples sector and weakness in technology shares indicates they are, in fact, concerned about what will happen to the economy.

So what does it all mean?

The price of gold and other precious metals has been rallying sharply, helped by a falling dollar, worries about rising inflation and concerns over the health of the global financial system. So far this year, the yellow metal is up around 20%.

Gold mining shares have not fared as well. They have been held back by broad-based weakness in equity markets and the prospect that higher costs for energy and other commodities could cut into those companies' operating profits.

Since the value of the ratio of the Market Vectors Gold Miners ETF (AMEX: GDX) to the streetTRACKS Gold Shares ETF (AMEX: GLD) hit a peak on October 31st, the yellow metal has outpaced the basket of mining shares by almost 20 percentage points.

Many people believe that the bursting of the housing bubble was a prelude to a far-reaching property bust, and that few segments of the market will ultimately be spared.

Indeed, reports indicate that the commercial property market, which held up relatively well amid the early decline in home prices, is now in trouble and seems headed for a potentially nasty spill.

Given that, I thought it might be useful to go back and look at the pattern of the S&P 500 Homebuilder's Index in the run-up to the July 2005 peak and beyond, and see how that pattern compares to the recent price action in the Dow Jones Equity REIT index, which is made up of publicly-traded real estate investment trusts.

Mining stocks don't always march in lockstep with the price of gold. Among other things, the shares can be affected by money flowing into and out of the overall equity market, as well as changes in company or sector operating fundamentals and investor outlooks.

That said, the shares and the precious metal do tend to loosely track one another; historically, at least, the relationship between the two tends not to move too far out of line. When it happens, however, it can signal a short-term trading opportunity.

Over the past few weeks, mining shares have come under considerable pressure in relation to the metal. In fact, the ratio of the Philadelphia Stock Exchange Gold and Silver Index (XAU) to spot gold has fallen to a level that has, in recent years at least, been a staging point for a relative rebound in the shares.

While it is possible that continuing turbulence in equity markets could produce a different result this time around, the pattern of the past five years suggests it is a good time to go long the shares and sell (or sell-short) the metal.

One way to play it using exchange-traded funds: buy the Market Vectors Gold Miners ETF (AMEX: GDX) and sell the streetTRACKS Gold Trust ETF (AMEX: GLD).

Michael Panzner is a 25-year veteran of the global stock, bond, and currency markets and the author of Financial Armageddon: Protecting Your Future from Four Impending Catastrophes and The New Laws of the Stock Market Jungle.

Although they've given back a bit of ground lately, commodity prices have performed well during the past year. Since last February, the benchmark Reuters/Jefferies CRB Index has gained 21.8%, aided in particular by strength in agricultural, energy and precious metals-related products.

One group of commodities, base (or industrial) metals -- which includes aluminum, zinc and copper -- has not kept pace with the others, however. Over the past twelve months, the Deutsche Bank Liquid Commodity Index-Optimum Yield Industrial Metals Excess Return Index -- which has an exchange-traded fund, the PowerShares DB Base Metals Fund ETF (AMEX: DBB) -- has only risen 2.1%.

Many financial stocks have been on a tear since the Federal Reserve's surprise 75-basis point inter-meeting rate cut on January 22. For example, the KBW Bank Index -- which has an equivalent exchange-traded fund, the KBW Bank ETF (AMEX: KBE) -- has rallied 16.1%, beating the S&P 500 index by more than 10 percentage points.

Yet not all financial sub-groups have kept pace with the banks. For instance, after performing well in relative terms during the fourth quarter, insurers have stalled, with the KBW Insurance Index -- which has an equivalent exchange-traded fund, the KBW Insurance ETF (AMEX: KIE) -- more-or-less tracking the move in the overall market in recent weeks.

On October 31, the benchmark U.S. dollar-denominated MSCI All Country World Index closed at a record price of 427.63. It has since fallen to 366.21, a drop of 14.36%.

Yet not all world markets have fared equally poorly. Over the three-month span, there has been significant divergence between some of the best and worst performers, as the accompanying graph and table attest.

While it is hard to draw definitive conclusions, two things seem to stand out:

• Aside from Japan, which has been among the worst performing Asian markets for quite some time (and thus, has likely attracted considerable "bottom-fishing" inflows from value and contrarian-oriented investors in recent months), and Malaysia, which has remained a curious oasis of stability since global markets peaked, Asia-Pacific markets have not been been a popular investment destination lately. Perhaps we are witnessing the unwinding of ill-fated "decoupling" trades?

In recent weeks, the Nasdaq-100 Index (NDX) has lost considerable ground on an absolute basis and relative to the S&P 500 index.

Interestingly, if you graph the relationship between the large cap, technology-heavy bellwether and the broad market index going back to 2002, the pattern of recent months looks vaguely familiar.

In fact, it seems to be a mirror image of the false breakdown that occurred in the summer of 2006. After that particular "head fake," the ratio staged a major upside reversal, and technology shares outpaced the S&P 500 index by a wide margin over the course of the following 12 months.

There's lately been plenty of evidence that investors are growing more cautious. Among other things, they are increasingly favoring defensive groups such as consumer staples and health care.

Not surprisingly, drug stocks, in particular, have also been attracting their fair share of institutional fund flows, based on what the sector-relative chart is showing us.

After lagging the broad S&P 500 index throughout the entire bull run, the AMEX Pharmaceutical Index has found its technical footing and recently broke through a key 5-year downtrend.

To be sure, investors have been less-than-enthusastic towards the group because of shrinking new-product pipelines and fears of a political backlash over high drug prices. Still, you have to wonder whether most of the "bad news" has been priced in.

If so, the pharmaceutical sector might be one group worth keeping a bullish eye on.

Michael Panzner is a 25-year veteran of the global stock, bond, and currency markets and the author of Financial Armageddon: Protecting Your Future from Four Impending Catastrophes and The New Laws of the Stock Market Jungle.

Recently, Merrill Lynch's chief North American economist David Rosenberg (and a few others) have taken the plunge saying that a recession is now underway in the United States. But that doesn't mean they were necessarily first to make the call.

If you look at how various sectors have performed since the S&P 500 index hit a closing peak of 1565.15 on October 9, it seems like investors, collectively speaking at least, were ahead of the forecasters.

From the point the market reversed and began the descent that has continued into 2008, some of the best performing groups have been those that are generally seen as "defensive," including utilities, consumer staples and health care.

During the first two months of the year, small and mid-cap shares were the stars of the show, relative performance-wise.

But with each successive swoon in the broad market -- beginning in late-February, late-July, and mid-October, respectively -- the shares of the biggest companies seemed to gain ground at the expense of their lighter-weight counterparts.

By the end of the year, the smallest capitalized shares had borne the brunt of the selling pressure.

So far during 2007, Japan's broad-based Topix Index has lost 12.2%, while the benchmark Nikkei-225 Stock Average has given back 11.1%.

In U.S. dollar terms, the Topix is down 7.6%, the fifth worst performer out of 90 selected global indexes, according to Bloomberg data. The Nikkei is off 6.4%, placing it sixth from the bottom.

On that basis alone, it's probably worth having a look at Japan as a contrarian play for 2008, especially given how well other foreign markets have fared in recent times.

So far this year, the Commodity Research Bureau Index is up 16.62%. Given all the headlines about high prices at the pump and near-$100 a barrel crude oil, some might naturally assume the best performer among the six sub-groups in the benchmark index is energy. That is incorrect.

In fact, the grain sector is the true king of commodities for 2007. This CRB sub-group, which includes wheat, corn, and soybean futures, has outpaced the broader measure of commodity futures prices by 34.61%, a relative gain around twice that of the energy complex.

Here is a breakdown of the performance (in percent) of the various sub-groups relative to the CRB (through yesterday):

Michael Panzner is a 25-year veteran of the global stock, bond, and currency markets and the author of Financial Armageddon: Protecting Your Future from Four Impending Catastrophes and The New Laws of the Stock Market Jungle.