Bank Index [BKX]: Near-Term Bottom in the Financials?

click on chart to enlarge

At the open of yesterday’s market, it looked like the Treasury announcement regarding Fannie and Freddie might be enough to spark a rally. However, the concern regarding the financials soon resurfaced, and the regional bank stocks began falling precipitously.

After IndyMac (IMB) was taken over by the FDIC, investors became concerned that there could be a large number of other banks to fail as well. I am sure the number of bank failures will rise during this period, but I'm not sure it will be the larger, well-known names that will be trading like death.

Looking at the chart above, I find the action in the Bank Index [BKX] interesting. The BKX alone fell an additional -8.5% yesterday. This is a huge move, but even more so in the context of the prolonged downturn in the financials.

If we turned this chart upside down, we would probably be highlighting it as a blow off top, and recommend taking profits in the stocks. So, one could make the same argument in reverse. Could yesterday's action have been the capitulation that might finally mark at least a near-term bottom in the financials?

The market remains oversold, as it has been for what seems like weeks now. My colleague on TheStreet.com noted that the 30-day advance/decline line is as oversold as it has been since September 1998. However, in bear markets, sometimes, oversold markets merely get more oversold.

That said, I am still looking for an oversold rally at some point, and will look to use any near-term strength in the market to reassess my overall stance.

Disclosure: None

Comments

[BSCLossMan]

I wish people would stop talking about the bottom in anything, particularly financials. We're in for a long slide yet.

[Alain Wong]

All banks are "well-capitalized... It's time to buy folks! ;)