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Stock Ideas Investors Daily Edge Could a Bottom Be Near for the Financials?
Stock Ideas Investors Daily Edge Could a Bottom Be Near for the Financials? 
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By Charles Delvalle For the past few years, economists have blasted the U.S. trade deficit as too large. But looking at a reduced trade deficit isn’t really a good thing. |
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| Could a Bottom Be Near for the Financials? |
| Thursday, 28 February 2008 | ||||||||
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Dear Reader, Despite the negative feel of the day-to-day, the market was able to squeak out another winning week last week, amid the continued volatility. The game winner came in the last half hour of trading on Friday on rumors that embattled mortgage insurer Ambac may have a capital investment coming in order to save their AAA rating. For the past few weeks, the threat that the mortgage insurers may lose this rating has worried investors in the financials. Such a move could send a new shockwave of selling through the group, as portfolio managers scramble to change their holdings based on such downgrades. As a result of the rumor, the SPDR Financials (XLF) finished Friday’s trading up more than two percent. Still, the shares have been unable to dig their way out of the hole, as they have struggled to tread water around 26-28 range for most of the year. What’s more, XLF must overcome the stubborn resistance of its 50-day moving average. As is often the case, the financials were a leading sector through the multi-year bull market rally. Conversely, the same group has been a leader to the downside during the market correction of the past six months. The relationship appears to be in the midst of a change now, though, as XLF tries to build a bottom. The chart below displays the relative strength of XLF compared to the Dow Jones Industrial Average (INDU) from August 1, 2007 to Friday’s close. The dip in this chart represents XLF underperformance against the Dow. Note that the relative strength of XLF is now improving, indicating that the financials are beginning to gain some traction against the market.  A shift in XLF relative strength from laggard to market leader might score well with investors, as the financials have been the Achilles heel of the market for the past six months. This relationship is critical in order for the market to improve, and is thus deserving of investor’s attention. Have a great trading week, CJ P.S. To let me know what you thought of today's article, send an e-mail to: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
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