Financial Sector Comes Roaring Back

Two weeks ago I wondered if the financial sector had suffered enough… no, it hadn’t.

But things look quite different now. Today and yesterday we had a remarkable change in tone for this sector. Snap back rallies in a declining trend are characteristically sudden and intense but none of the recent ones in this sector approach what we saw this week:

To add to yesterday’s rebound we had an almost 12% advance. Some of this is due to short covering. ok, a lot of it is due to short covering. But still, this sector was the favorite punching bag of all hedge funds looking for an easy short trade. Not anymore. The shorts are being squeezed like crazy.

Understandably, we snapped back from a tremendously oversold condition. A measly 7% of stocks in the financial sector were above their 200 day moving average. And the bullish percent index didn’t brake until it had broken through 6%. Six percent!

To put that into perspective, here’s the chart I showed last time updated (going back to 1997):

I find it astonishing that this sector could get crushed even more severely than it did than during such periods of financial turmoil as the 1998 LTCM crisis and the popping of the Internet bubble.