Financials Buying Opportunity Close at Hand

Since our last update on the banking sector, this market has continued to free fall with no end in sight.  As markets continue lower, the financials are showing the way and with the credit problems that continue to put a damper on things for the banks, the worst seems yet to come. 

From what we have been reading, only 30 to 40% of the actual write-downs have been made by the banks.  The market knows this and is expecting some of the banks to go bankrupt or be taken over at bargain basement prices.  We know the US banking sector is in deep trouble and we know that these stocks will continue to head lower but the show must go on. 

We also know that the Fed will not support any more of these collapses.  Take a look at the Fed's repo lending activity.  That should give you a clue that they no longer wish to inject an endless supply of liquidity into the markets.

We are witnessing longer term, multi-year and decade support levels being broken and being broken with massive volume.  Not good.  I mentioned a pattern of lower highs and lower lows all the way down from the top.  This is still intact.  No sign of a bottom as of yet.  Lets take a look at some of the charts to give us clues.

However, with all this being said, we are a couple of months away from perhaps the greatest buying opportunity on some of these banking stocks that we will ever see in our lifetime.  The capitulation we are witnessing here and now will put a bottom in for years and will provide us with an opportunity to steal some of these companies for dirt cheap.  The selling in these stocks is still controlled with no divergences to be found.  Once we start seeing those divergences building, we will start to look for fundamentally sound banks and keep a close eye on them, looking for price breakouts. Stay tuned!

Disclosure: None

Comments

[BS Detector]

Voodoo.

[Stewie]

You are falling into the same trap a lot of others have. That is lumping Investment Banks and Commercial Banks into the same category. IB's will come back to profitability much faster than traditional banks and may be worth looking at in the forth quarter. Commercial banks will continue to worsen through 09 and into 2010. We are not even close on those yet. Good ideas though.

[squashnut]

There will always be a need for banks. Dentists should focus on drilling teeth, and pool their surplus cash with "experts" who focus on finance. Even with a paperless economy (coming soon) major money transactions should be done face to face.

But there will never be a need for leveraged CDO's based on subprime mortgages and a belief that housing prices never go down. When the dust settles it will be a long time before anyone has any confidence in the major investment banks, which will be under stricter regulation. In our lifetimes they will never see another boom like the last one.

[Stewie]

"Dentists should focus on drilling teeth, and pool their surplus cash with "experts" who focus on finance." Please if you believe Commercial Bankers are financial experts you deserve to lose your money. Give us a break.

[najdorf]

Stewie: Of course there are problems with bankers. If you want to see what happens when the dentists try to do better, check out prosper.com. A person who wants a flexible investment that preserves capital and returns acceptably has no alternative but to deal with the banks. Also we're never going to see an America where people regularly pay cash for houses. The banking industry as a whole will find a return path to profitability - this isn't the airline industry.

[Plantinseeds]

IMHO the financial sector will never get back to the over valued prices of not too long ago. YAY! IB's, CB's....all of em were ripe with fraudulent manipulation. Wow just like the fed gov.
I hope and pray that only the institutions that will run their business with morality and good ethics will survive.

[Vegasjoe]

As I believe Charlie Munger once said, technical analysis of this sort is an advanced form of dementia isolated to inhabitants of Wall Street

[Kunal Vakil]

Dementia, huh?