Thursday, September 4, 2008

Watching the Financials to See Where We Go From Here

I wanted to put up one last post before the weekend because I think that even though we are short-term oversold and stretched here, after going through my scans I think we could still get hit tomorrow if the jobs number is bad. The main reason I say that is because the financials have held up relatively well during the selling of this week, and I really just can't imagine this group will not suffer eventually if the market is going to make a move lower. So far this week both commodities and tech has been taken to the woodshed. Are financials, the worst of the worst in terms of this bear market, really going to just escape the wrath of the bears and not fall precipitously here, or are they just last on the bears' checklist and setting up for a hard fall just like tech and commodities?

In looking at the XLF, it is right above its 50 day moving average and has bearish volume patterns. Perhaps these really have bottomed, but I have to think this tests its summer lows at some point. I am watching this index tomorrow to see if it fails this level. I am already in SKF but would look to put on more if XLF gets hit Friday. A bad jobs report might be enough to do it.

XLF, RKH

Now before I write anymore, let me say this: IT IS VERY, VERY, VERY RISKY TO SHORT ANY STOCKS RIGHT NOW. But if XLF breaks down, I think it might be worth the risk and may take some financial shorts anyway for short-term trades. One lesson I have hopefully learned is that stocks can go down much quicker and faster and longer than I think they can and if this is indeed what it looks like it is (a new downtrend), it doesn't really matter than we are short-term oversold. It can stay that way tomorrow and into next week. So although I normally don't like chasing shorts, and I still certainly would not short tech or commodities here, I think there might be opportunity in the financials since they really haven't given it up this week like the rest of the market. Tech may bounce tomorrow. Commodities may bounce tomorrow, especially if crude holds up. But I still think financials could fall.

Here are some of the stocks I will be watching tomorrow in this sector. Again, this really would be the only sector I would think of entering new shorts right now - it is the only one not stretched to the downside.

JPM, C, LM, MS
ZION, STI
PACW, FCSX, EVR, WFSL

Others I am watching here MER, CMA, GHL, AB, IBKR, LEH, WB, OFG, and FCFS.

There are a few other setups I see in other sectors but I think I will strictly focus on the financials. Others to watch here are HOV, DKS, PNK, WYNN, BYD, and CYBX.

VIT, DV
All Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

Hopefully this post makes sense - I had a hard time verbalizing my thoughts tonight. Normally, I wouldn't even consider shorting after three big down-days on the indices, and I might be completely wrong on these financials. Looking back on this week, I can see a lot of great opportunities that I passed on for some reason, so perhaps my frustrations are just making me try to get some of those lost opportunities back in the financials. Maybe I am forcing things by focusing on these. We'll see - I am not going to enter unless we get further breakdown, and because the overall market is stretched, I will be quick to cover if I see sings of reversals. Maybe I will pass once again all together. But for some reason I am looking for another breakdown in these stocks - they have led us lower so far this entire bear market, and I can't see them not participating in another move lower now. Either way, with the jobs number, tomorrow should be an interesting end to an eventful week. Best of luck tomorrow and see you Sunday.

1 comment:

TraderJoe said...

Agree that the market is oversold and it’s very risky to short now.