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Financial Sector Is Cheap (Again) at Trader’s Narrative

Financial Sector Is Cheap (Again)

At the end of July I mentioned that it was time to consider the battered financial sector. Back then, the bullish percent chart for the sector approached 25%, a level which usually means oversold. But yesterday, this same indicator dipped to just 16.13%:

financial sector bullish percent november 2007

After I mentioned the opportunity to go long the sector, banks and financials did recover but in a very limited way. Even so, the paltry rally was enough to push the bullish percent index to almost 80% - which was a sign that things had swung to the other extreme and it was time to exit.

Getting back to the present, the bullish percent index has not been this low since early 2000 - when the Philadelphia Banking Index (BKX) was more than 30% lower:

Philadelphia bank index BKX november 2007

Things are very stretched to the downside here and we are ripe for a snap-back rally. Although it is extremely difficult, the best time to buy a bargain is when everyone else is running for the hills, screaming in fear.

See this link to learn more about how I time the stock market using bullish percent charts (based on point and figure charting).

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6 Responses to “Financial Sector Is Cheap (Again)”  

  1. 1 David Merkel

    How do you manage to aggregate your point and figure statistics by sector?

  2. 2 Aaron

    Certainly not nearly as cheap tonight as last night, but I do agree there are lots of cheap stocks in that sector. Goldman Sachs fits the bill very nicely, since it has done well no matter the market.

  3. 3 Babak

    David, I use the sector indices supplied by stockcharts - but you can also make your own indices if you join as a member.

    Aaron, cheap is relative ;-)

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