The Unconvincing Rally in Financials

Financials are on a roll right now: the XLF index fund, which tracks the S&P financials index, traded as high as $20.89 this morning, exactly $4 or 23.6% higher than where it traded at the same time Tuesday morning. That kind of volatility bespeaks short covering to me, which means that the growlings from the SEC might be partly responsible for this latest uptick.

The problem is that short-covering rallies, by definition, have no conviction and often don't last long. We're in the middle of earnings season, which means volatility's probably going to remain high in the short term. And anybody looking at this mini-rally and seeing cause for optimism is, I fear, being decidedly premature.

Comments

[bbzz24:]

Financial Times: Even banks bounce... when dropped from great enough height.

2008 Jul 17 12:12 PM

[phdinsuntan...:]

great shorting opportunity

2008 Jul 17 03:06 PM

[Archman Inv...:]

Anyone who actually took more than 5 minutes to read the WFC earnings and the JPM earnings knows this:
Ride this fake rally up as far as you can, then its ring the register time.
Mom and Pop are once again going to get the shaft here.

2008 Jul 17 03:24 PM

[fatcat:]

I bought the wfc puts yesterday and jmp puts today.Tomorrow,I will buy cof puts,if the aftermarket hasn't messed that up.These puts held up all day inspite of the spikey moves all day.That tells me that the financials are heading down...

2008 Jul 17 07:31 PM