Trader’s Narrative

So we have everything we need lined up: lackluster sentiment, an unbelieving public, unprecedented and unyielding bullishness from insiders (commercials) and a reprieve from the bond market.

Looks good doesn’t it? Prices are demonstrating the sentiment and technical underpinings by breaking out into thin air territory.

Just one thing that bothers me about the current scenario. If we are indeed on the threshold of a powerful, new bull market… then why are the financials so weak? Of the two, the Bank Index (BKX) is weaker. But the Broker Dealer Index (XBD) isn’t anything to write home about.

Since they are a leveraged proxy for the market, why aren’t they are the forefront of the move?

What I mean by that is each company in this sector has its destiny intertwined with the stock market. The more activity there is, the more money they make. The higher the market goes and the healthier it is, the more money they make. In effect, they are a sort of never expiring call option on the stock market.

So what explains their lackluster performance?

Are banks and brokers simply shunned irrationally? Have they become (saints preserve us) “value” plays? Maybe the market’s wisdom senses some as yet unforseen calamity like the sub-prime debacle. But then again, even Bear Stearns (BSC) seems to have come out almost unscathed. Looking at their stock chart, it is hard to imagine this is a firm going through a major crisis.

Here is the Broker Dealer Index (XBD) which is trying mightily to just hang on, relatively speaking:

And the Banking sector, significantly weaker and in a clear short term downward trend: