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Financial Sector Roars Back at Trader’s Narrative




Financial Sector Roars Back


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Two weeks ago I wondered if the financial sector had suffered enough… no, it hadn’t.

But things look quite different now. Today and yesterday we had a remarkable change in tone for this sector. Snap back rallies in a declining trend are characteristically sudden and intense but none of the recent ones in this sector approach what we saw this week:

phili bank sector index jan 2008 bottom

To add to yesterday’s rebound we had an almost 12% advance. Some of this is due to short covering. ok, a lot of it is due to short covering. But still, this sector was the favorite punching bag of all hedge funds looking for an easy short trade. Not anymore. The shorts are being squeezed like crazy.

Understandably, we snapped back from a tremendously oversold condition. A measly 7% of stocks in the financial sector were above their 200 day moving average. And the bullish percent index didn’t brake until it had broken through 6%. Six percent!

To put that into perspective, here’s the chart I showed last time updated (going back to 1997):

financial sector bullish percent index Jan bottom

I find it astonishing that this sector could get crushed even more severely than it did than during such periods of financial turmoil as the 1998 LTCM crisis and the popping of the Internet bubble.

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2 Responses to “Financial Sector Roars Back”  

  1. 1 Scoad

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    The BKX rally looks a bit too abrupt to be a solid bottom but its a start.
    I think you’d have to go back to the S&L crisis to get a period as bad as this for the financials. LTCM and the dot- com bust weren’t as bad for the financials, although for the total mkt I think dot-com was a lot worse.
    Just one more sentiment beauty- the “legendary”, Jeremy Grantham on Tues told us the Minsky meltdown had arrived- well the melt froze ovr pretty quick and today we hear that he says it’ll take yrs to fix this crisis. At the same time on practially every financial website the smart guys who of course saw all this coming are telling everyone to rent stocks for a bounce and then reload those shorts baby. Hmmmm…

  2. 2 Gregor

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    I find it astonishing that this sector could get crushed even more severely than it did than during such periods of financial turmoil as the 1998 LTCM crisis and the popping of the Internet bubble.

    The LTCM/Russian Rouble meltdown was child’s play in both size and scope to what’s unfolding now. Of course, it seemed like the end of the world at the time. It wasn’t. The danger here, now, is that the current disease is so huge and widespread it looks like it could unfold over several years. By the way, I am bullish on global stocks, regardless.

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