The S&P 500 finally stopped the bleeding on July 16 after nearly two months of losses, gaining 2.5% on Wednesday, and 1.2% on Thursday, July 17. Those gains don't come close to undoing the damage done in May and June, but they did come at a point in time when few investors expected anything positive to happen. Perhaps that's a hint we should take.

What's really surprising is which sectors and styles are carrying the weight. It's not the previous leaders; instead, it's mostly the previous laggards, according to the recent performance of sector and style exchange-traded funds (ETFs). For the purposes of this exercise we're using Vanguard's market cap and style-based ETFs as our trading instruments. There are a variety of comparable choices though.

Previous Bullish Leg
Just for the record, we're defining the last bullish leg for the market as the period between March 17 and May 19. That's obviously not a long time, but even if this bullish effort gets traction, we have no reason to assume it will last any longer. The Russell 3000 gained 12.5% during this time. Check out the performance disparity between styles and company size.

Vanguard ETF Performance
March 17, 2008 - May 19, 2008
Fund Performance
Mid-Cap Growth
Small-Cap Growth
Mid-Cap Value
Large-Cap Growth
Small-Cap Value
Large-Cap Value

The major themes were weakness in value, and weakness in large cap. Mid caps of any variety did pretty well. Even as the market tumbles between late May and mid-July, these ETFs basically held their relative ranks.

Now the Tables Have Turned
Next take a look at how the same groups fared over Wednesday and Thursday of last week - potentially the first two days of a decent rally.

Vanguard ETF Performance
July 16, 2008 - July 17, 2008
Fund Performance
Small-Cap Value
Mid-Cap Value
Large-Cap Value
Small-Cap Growth
Large-Cap Growth
Mid-Cap Growth

Now the order is completely different. Value is dominating, small caps are strongest in both the value and growth categories, and mid-cap growth has moved from first to last. As stated, two days worth of data isn't infallible, but it is interesting to see which stocks investors went for first this time around.

By the same token, although two days isn't much time, if this is only going to be a two-month rally, waiting to see a month's worth of leadership data isn't going to leave much meat on the bone.

FInal Thoughts
This is all fine and dandy, except for one problem: What if the market tanks again? Won't all these same exchange-traded funds sink to some degree? True. However, you can't hit a ball you don't swing at. As an investor your job is to find those better pitches you can do something good with. If recent history (or even distant history) is any indication, the odds actually favor more upside from this point.

On July 15 we saw something we haven't seen in decades. The number of NYSE-listed stocks hitting new lows totaled up 1,304. This sounds bearish on the surface, especially considering the average number of new lows hit each day over the last year has been 141. However, a massive number of new lows is frequently associated with a capitulation to at least some degree.

For instance, on August 16, 2007, we saw 1,183 new NYSE lows; two months later the S&P 500 had gained 9.0%. On September 21of 2001 (10 days following the 9/11 tragedy) we only saw 800 new NYSE lows, and that was in the middle of a bear market. Yet, two months later, the S&P 500 had rallied 18.2%, with more bear market yet to come.

The point is, the odds seem to favor bullishness for a little while. The leaders with the best start out of the gate this time around aren't the same ones that led the prior bullish leg. This could indicate the time for a change.

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