Monday, July 14, 2008

Was Today Capitulation In The Financials?

At the open, it looked like the Treasury announcement regarding Fannie and Freddie might be enough to spark a rally. But soon the concern regarding the financials resurfaced, and the regional bank stocks began falling precipitously.

After IndyMac (IMB) was taken over by the FDIC, investors became concerned that there could be a large number of other banks to fail as well. I am sure the number of bank failures will rise during this period, but I'm not sure it will be the larger, well known names that seem to be trading like death.

Looking at the chart above, I find the action in the bank index (BKX) interesting. The BKX fell an additional -8.5% today alone, a huge move, but even more so in the context of the prolonged downturn in the financials.

If we turned this chart upside down, we would probably be highlighting it today as a blowoff top, and recommending to take profits in the stocks. So one could make the same argument in reverse. Could today's action have been the capitulation that might finally mark at least a near-term bottom in the financials?

The market remains oversold, as it has been for what seems like weeks now. My colleague on noted that the 30-day advance/decline line is as oversold as it has been since September 1998. But in bear markets, sometimes oversold markets merely get more oversold.

That said, I am still looking for an oversold rally at some point, and will look to use any near-term strength in the market to reassess my overall stance.


At 5:53 AM, Blogger Tim said...

Another day, another call for the bottom. Give it up dude. Of course you'll be right one day, but at best, the rally will only get the market back to when you first started calling for the rally.

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At 7:47 AM, Blogger J. Kahn said...

I am trying to point out current market conditions, and what the probably course of the markets has been when these conditions have been present in the past.

I am not trying to say, "right here, right now, this is THE bottom". I have noted how oversold this market is, but also acknowledged that in bear markets, oversold can still get more oversold.


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