Bank Index Still Underperforming
No bottom until financials outperform.
Sometimes all your fears come true. Here are some of the points we collectively worried about:
- Even though in the 2000-2003 bear market there was one 6-month rally, most bear-market rallies, on average, last about 2 months. So, given that the low was reached on November 20, 2008, we might be entering a more vulnerable time in the market action.
- Interestingly, the bulk of the gain came on the first 2 days, after the low. Since then, while some beaten-up equities have continued to add onto further gains and breadth has expanded, the major indexes gains have been marginal.
- It's probably become monotonous to hear this repeatedly from yours truly, but the reality is that I remain concerned about the underperformance in the Bank Index. My assessment of bear markets has concluded that even average bear-market rallies get adequate financial sector participation - and real bottoms definitely need financials to be the outperforming, not underperforming.
Click to enlarge
In the above chart, do you see a descending triangle? Successive lower highs and the same support level getting repeatedly hit (around 40.5). I don't even have to talk in fancy technical terms to see that this is a sign of weakness, both in absolute and relative terms.
- Again, my eyes might be fooling me, but I continue to see bearish ascending channel/ wedge formations in major indexes. Here's the IWM, for instance.
Click to enlarge
What now? Well, many sentiment/technical indicators are not oversold as of yet, but some of the most elementary ones that I look at, for instance, the percentage of stocks above 10 day average, is definitely in oversold territory.
Also, this is no guarantee of future ultra-short-term-rise, but today is the 6th day of market decline and we have eroded almost 100 points on the S&P 500 since January 6th.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter