Joey Fundora, at Downtowntrader, sees technical divergences which may indicate the financials are approaching a reversal.
Technicals Start To Show Signs Of A Shift In The Financials
It is clear that the financial sector has been in a death spiral since June of 2007. What is less clear is whether this sector is responsible for the severity of the current bear market -thanks to the sub prime mortgage fiasco and the resulting threat of a global financial meltdown. Several financial entities have gone by the wayside and we’ll likely see others fail as well. Beyond this, the financial systems are undergoing fundamental changes such as the extinction of investment banks. With the resulting upheaval, it’s not surprising that the sector, as measured by the Spyders Select Sector Financial ETF (NYSE:XLF), has lost approximately 80% of its value compared to its June 2007 highs.
Over the past year, every time the sector seems to stabilize, another "shoe drops", causing the bottom to fall out as early bottom fishers stampede for the exits. To compound things, it seems like the news is constantly worse than the preceding news and currently, it seems like investors have lost any semblance of confidence in the sector. Most recently, the threat of nationalization to some banks triggered another wave of virulent selling…
So while the financial sector is still littered with disasters and possible ticking time bombs, it does appear that some stocks are diverging from their peers. The question is whether the sector will drag down these leaders, or if the leaders will spark buying interest in the laggards. Divergences don’t offer trading signals, only warnings or clues that momentum can be shifting from one group to another…
Full article in Investopedia.
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Joey Fundora
