Financials Leading General Market Again

Monday’s market notwithstanding, the financial sector has started to lead the general market once again.

Here is a chart of the Philadelphia Banking Index (BKX) alongside the S&P 500 Index (SPX):

The de-coupling started just recently but it is unmistakable. Here is another way of looking at the relationship between the indices:

The change has just started and it is far too early to declare a trend change just yet. For that, we need to see the downtrend line broken to the upside by a continued surge in the financial sector.

But the important thing is that counter intuitively, a bull market doesn’t need the financial stocks’ leadership.

Bullish Percent
The spike low corresponds to late June, when the bullish percent for the banking sector dipped below 10% - actually going all the way to 5.62%. The last time we saw the bullish percent this close to zero was back in mid January 2008. And as far as I have data, never before!

Tectonic Shifts
This financial turmoil is unprecedented. For as far as the Philadelphia Banking Index has been trading, it hasn’t broken down this drastically. What we are seeing is tectonic shifts in the banking industry which will not only reverberate for some time to come, but it will produce a horizon drastically different from the one we knew just a month ago.

Comments

[MarvinMBA:]

Actually all the action is now over believe it or not. It does not mean we are out of the woods....a slow downward trek into a significantly slower economy, more unemployment, more pain...in other words we are simply going to touch DEPRESSION a scare word no doubt. This is the crystal moment in time to have significant CASH EQUIVALENT assets moving forward into a new ere in which the good old USA is going to be second or third rate. The rest of the world senses a dead horse and driver so that the contents of the cart can be stolen...watch Iran and Russia and Syria and China leap to grab the spoils....too bad this admnistration f####ed royally as the biggest fiasco in American History and we could be in for another 4 years of the same..you get what you deserve..as you sow so shall you weep...Marvin the Maven

2008 Sep 15 05:29 PM

[Schweizer:]

Look, here's the truth. The Fed and Treasury drove up the financials since July 15th so that these institutions could deleverage at inflated prices before the unavoidable collapse. These institutions had 2 months to sell into the bogus financials rally to raise capital by selling their bank equity assets rather than having to go raise capital elsewhere. They had till last week to get it done. Those that didn't - tough beans.

This is what WAS going on. The BKX plunged -8.42% today vs -4.7% for the SPX, so the BKX could still regain it's leadership - to the downside, measuring from a week ago.

2008 Sep 15 06:56 PM

[ICouldBeWrong:]

Schweizer could be right.

Anyway I agree that financials are leading the market again, but XLF is now leading the market down, not up!

2008 Sep 16 12:20 AM