Are Financial Stocks Preparing for 'The Fall'? 52 comments
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When I say "The Fall" I'm not speaking about Autumn, but there might be a seasonal paradox tied into this question that should make us all sit up and take notice.
Take Citigroup (C), please. Since it hit an intra-day low of $2.99 on July 31st it has shot up almost 40%, and the usual "cheerleaders" like Jim Cramer are touting it every chance they can.
Average daily volume on C is around 442 million shares, but on August 5 the volume soared to almost 2.7 billion shares (6 times the average volume) and last Friday the 14th almost 1.2 billion shares traded hands.
Somebody (or bodies) are really filling up their coffers, and who knows, it might even be exchange insiders and some big banks like Goldman Sachs (GS) and JP Morgan Chase (JPM). In fact, it wouldn't shock me to learn that Bank of America-Merrill Lynch (BAC) might be doing some trading for their own accounts and their biggest clients just when the nervous nellies are hearing the ghosts of the "Fall of 2008".
Then there is the Financial Select Sector SPDR ETF (XLF) with an average daily volume of over 134 million shares. On August 6th, volume spiked to 236 million shares and the next day another 190 million shares traded hands. Again, some meaningful accumulation is going on usually a typically quiet period.
Yesterday, XLF volume dropped to 81 million shares and it appears today that volume will also remain light. I personally believe volume is a more important indicator than price is when it comes to who is "making the market" in the financial stocks and for what purpose.
Bank and financial stocks have had an amazing run. They've gone from the most oversold sector at the bottom of the market back in March, to the most overbought sector today.
But according to Jeff Clark, the editor of Advanced Income, that run is going to come to an end. "And the aftermath will be ugly."
Writing for The Growth Stock Wire (GrowthStockWire.com), Clark brought out some salient points.
Take a look at this chart of the Bullish Percent Index for the Banking Sector ((BPFINA))...
A bullish percent index is an indicator of overbought and oversold conditions. The BPFINA measures the percentage of banking stocks trading with bullish technical patterns. It can range between 0 and 100. The index is oversold below 30 and overbought above 70.
Back in March, BPFINA dropped below 5 – meaning fewer than 5% of all the stocks in the banking sector had bullish technical patterns. While not necessarily a buy signal, an oversold reading that extreme is a pretty good sign that the downside is limited.
Today, we're looking at the exact opposite situation. Last week, the BPFINA touched close to 90 – meaning 90% of the stocks in the financial sector are trading with bullish chart patterns. This is one of the most extreme overbought readings of the past decade.
Richard Wendling, who writes the Bear Facts Specialist Stock Report, uses a Summation Index to figure out the same overbought versus underbought factors.
Richard recently wrote that his summation index of financial stocks is overbought when it is a plus 2000, and currently resides at 7986, "nearly three times more than it should be and you [that is why we] have the makings for a major decline."
Now let's get back to Jeff Clark who is a big follower of the Volatility Index (VIX)---"often used as a measuring stick for fear among investors – is at its lowest level since last September. More important is the Bollinger Bands – a measure of volatility for the VIX – are also as narrow as they've been since last September."
So what, I say. Don't get your knickers in a twist, right? Jeff goes on to point out something powerful is a-brewing, "Take a look...
This is a chart of the VIX plotted along with its Bollinger Bands. The bottom chart shows the width of those bands.
The VIX typically declines as investors grow more complacent and less fearful with the stock market. You can see how the decline from elevated levels back in March has coincided with the rally in stock prices. Conversely, the VIX rallies as investors grow more fearful – as evidenced by the rocket shot higher in the VIX last September.
The current relatively low level of the VIX indicates investors are less fearful of a decline in stock prices.
But it's the narrow Bollinger Bands that grab my attention. You see, tight Bollinger Bands usually occur before a large-scale move in the chart. So the VIX is on the verge of a big move one way or the other.
It doesn't have to be to the upside. Indeed, a sharp decline in the VIX would widen the Bollinger Bands just as quickly as a sharp rise. However, with the VIX trading at its lowest level of the year, the odds favor a move higher. And a rising VIX usually means lower stock prices.
By the way, did you see what happened to Alcoa (AA) when Goldman Sachs downgraded it to neutral and started upgrading Freeport-McMoRan Copper & Gold (FCX)?
At last check Alcoa was down almost 5% on average volume, which might be a signal that the stock is getting ready for more accumulation before it is rallied higher and then shorted by the "The Smart Money" crowd.
Conclusion/Translation: The Financials and the broader market might have another move higher before it has any kind of significant correction. In fact, based on volume and the trading habits of the exchange insiders and the specialists, we may see another rally before the financial stocks finally greet "The Fall".
Some of us are considering the wisdom of buying some of the inverse ETFs like SKF, FAZ or SDS when the last of the Nellies start chasing the financial stocks and piling into the market, driving prices up to even more unsustainable levels.
Although you can make a lot of money if you are correct with these inverse ETFs, you can lose a lot quickly if your timing is wrong.
But if you read and re-read articles like this one you'll probably see that the downside possibilities for the financials and the major indices are becoming more prominent with each passing rally. That bodes well for SKF, FAZ, SDS and a few others you might think of.
Disclosure: I own some JPM and AA
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please remember investments can fall as well as rise. And they will! - Advanced Investor Technologies LLC accepts no responsibility for any loss or damage resulting directly or indirectly from the use of this content.
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Aggressive reader and researcher ...
Growth oriented Fundamentalist...
A fact of life, so eloquently put in simple English, by "Mad Hedge Fund Trader" and is worth repeating (tips hat).
"You realize, don't you, that you're now just a welfare queen? sucking off the hind tit of the taxpayer? and you're proud??"
Obviously one of the pissed off ones. Too bad, so sad.
It feels great watching a stock go up, but if you don't sell high after buying low, eventually it will go back down, especially with an irresponsible, bailed out bank like C. If you don't realize your gains, you'll eventually lose your investment.
On Aug 20 10:15 AM ifuwish2 wrote:
> i bought my citi shares at .97 and still have them,,the whole time
> everyone kept saying sell the bear market is coming,,i still have
> them and smile every day,,,i never missed the bottom and good thing
> i dont listen to the writers here or i would of missed the bottom,,i
> read every day people saying not to buy ,,but they are the losers
> and will get in too late,,so they can sit and watch and do their
> writing,,ill hold my citi shares and smile
On Aug 19 07:29 PM Paul Z wrote:
> Marc,
>
> I completely agree, overall I've been bearish for the 2nd half of
> this rally, rubbing my eyes the entire way. I started thinking the
> beginning of the bear market was this week, and it may be.
>
> ....until this morning when I saw crude jump today on lower reserves,
> thus leading the market up today. Do you think it is possible that
> the final jump before the next big correction will be led by energy?
The chart told me to stay in with a limit order, but after taking hits earlier this year with leveraged shorts (and yes, I know the details and how to trade 'em), my nerve went and common sense said take your money off the table now; and I did. Running them for a few days, which I did, is not conducive to rest and relaxation, so if I get back in anytime soon, it'll be on a day trading basis.
crudeoiltrader.blogspo...
The popups that your computer has viruses, etc. are spyware. If you have anti-spyware then one or more spyware infections have gotten past your security. I have ant-spyware but one got in two weeks ago and I still have not been able to get it removed by my security company. It is sophisticated enough that I need to use a higher level service that I have to pay for. There is also anti-popup softfware. Even if you have it there is the question of how good it is and how sophisticated the popups are.
On Aug 19 04:35 PM Cabdriver wrote:
> Its disconcerting that I had to reload/start over this page 3+ times
> because of advertising/popup/lies about the state of my machine.
> I just signed up yesterday, was refered to this article by updown.com,
> & some advertiser has to play games with me. I hope this doesn't
> continue lest I resign just as quick.
>
> Back to the article, interesting, but not one mention of the "Big"
> players; the Fed & that Prince [Aliweed I think, at$4 if memory
> serves, is still abuck below what he bought at the last time we went
> through this with the banking sector aka S&L "crisis"]. As a
> relative newbie to the market, I'll consider all the info provided
> in addition to the history. As for "cheerleaders", well those of
> us that are "retired" understand the motivations of fellow retirees,
> like the other banks [I'm looking at you PNC] there was a big opportunity
> to profit when "others were losing their heads", I welcome any time
> I can double my money either by folding it in half or siding with
> the Fed for a short term. Is "C" another, I'm too conservative &
> I don't think anyone has a handle yet on what the short term fixes
> will "yeild", though I am very curious how folks intend to "repair"
> Citi 1st before I'll focus on the charts/price/ect. If anyone has
> more info on the overhaul, I hope they bring it out into the open.
On Aug 19 10:36 PM Novice Trader wrote:
> I'll maintain my trailing stop of 8% across the board. You guys can
> jump into the market at anytime. When you do, I might be willing
> to sell you some of shares that are up 500%+ (GNW for example). :-)
>
>
> Frankly speaking, I enjoy reading your pessimistic perspectives.
> As I've said before in a different post, it gives me (and others
> like me) perspective, especially after watching my stocks go up day
> after day and then watching Cramer.
>
> You guys offer a good balance to the positive that I take in everyday
> and your insight keeps me on my toes, leaving me to be ever so watchful
> of whether or not I need to sell or tighten my trailing stop. <br/>
>
> However, sometimes I do (honestly) wonder if many of you aren’t just
> pissed off at the world that you’ve missed this sustained rally and
> all you know how to do is complain and/or short the market. I honestly
> wonder this sometimes. Perhaps I’m naieve, perhaps it’s due to me
> being a novice. I suppose only time will tell. Hopefully none of
> us will get hurt waiting to find out.
SDS. What's pessimistic about that !!!
Fundamentals for a significant minority (if not outright majority) of stocks were excellent around the new year, but now, I'm hard-pressed to find any real deals out there. Or, at least, deals that I have already acquired in the past several months.
Good luck with your trades.
On Aug 19 10:36 PM Novice Trader wrote:
> I'll maintain my trailing stop of 8% across the board. You guys can
> jump into the market at anytime. When you do, I might be willing
> to sell you some of shares that are up 500%+ (GNW for example). :-)
>
>
> Frankly speaking, I enjoy reading your pessimistic perspectives.
> As I've said before in a different post, it gives me (and others
> like me) perspective, especially after watching my stocks go up day
> after day and then watching Cramer.
>
> You guys offer a good balance to the positive that I take in everyday
> and your insight keeps me on my toes, leaving me to be ever so watchful
> of whether or not I need to sell or tighten my trailing stop. <br/>
>
> However, sometimes I do (honestly) wonder if many of you aren’t just
> pissed off at the world that you’ve missed this sustained rally and
> all you know how to do is complain and/or short the market. I honestly
> wonder this sometimes. Perhaps I’m naieve, perhaps it’s due to me
> being a novice. I suppose only time will tell. Hopefully none of
> us will get hurt waiting to find out.
Stocks are a leading indicator for the market, and something like the 200 day moving average is about as close to the definition of a 'lagging indicator' as you can get. If I used technicals at all (and I'm glad I don't), I would correlate breaking 200 day MA to a sell signal. BTW, I am long C, and not because of technical factors.
On Aug 20 12:33 PM Marc Courtenay wrote:
> I did want to disclose that after I wrote and posted this article,
> I decided late Wednesday (right before the closing bell) to nibble
> on some shares of Citigroup (seekingalpha.com/symbol/c) at
> $4.12. Today I'm glad I did since C has broken above its 200-day
> Moving Average. My thesis in the article still stands, and if I get
> my 20% or so profit on C I will take my profits with gratitude. Knowing
> when to sell is harder than knowing when to buy in my estimation.
On Aug 20 11:16 AM Robert262 wrote:
> If and when Cramer offers his advise to buy, it's usally a solid
> indicator that the stock is heading down in short order. For that
> reason, I have taken my position in C off the table. Having a run
> up on this stock is only good for the governments offical bankers,
> Goldman & Morgan.
The big palyers are not interested in another 5-6% (re: GS 1060 s&p prediction) up-side when they can cash in on a +20% down move. They are selling now, booking huge profits, then they will sell short on a huge scale to initiate the 'correction'.
I would do the same if I had 10's of billions to invest and controlled the talking heads.