Moby Waller's  Instablog

The financial sector is continuing its strong uptrend today. It appears that many investors/traders/funds are reconsidering the positioning, balance sheets, and profit potential of many companies in this group. After the massive selloffs seen over the past 2 years, many financial stocks are coming off extremely low levels and have made huge gains since the March market bottom.

Currently, it looks as if the runup in banks, brokers, and many other financial-related companies is accelerating. There appears to be developing a buying near-panic which is turning almost parabolic in its nature -- somewhat the reverse of the panic selling we saw last year and early in 2009. This could also include shorts being squeezed. Another factor contributing to the runup may be large amounts of Call buying, which then causes Market Makers (who fill public option orders) to buy underlying stock to hedge their short Call positions.

BKX Daily Chart


Certainly there is risk of a pullback/reversal when a trend gets as strong as we see in the above Daily Chart. However, if you look at the longer-term BKX Monthly Chart below, which covers 36 months of data, you can see that the current move is actually fairly insignificant when you consider the size of the drop. Even a 50% retracement from the old highs would be roughly another 10 points gain in this index, to the 60 area.

BKX Monthly Chart

Bottom line: Many financial-related stocks are on somewhat of a runaway accelerated uptrend. Certainly parabolic-type uptrends contain risk of a sharp pullback ... but the longer-term charts and power of the current momentum trend indicate further upside potential ahead over the coming weeks.

Moby Waller
BigTrends.com
1-800-244-8736

Disclosure - Moby Waller currently owns and/or has recommended long positions in various Financial-related individual stocks and options.  Holding period of his trades and/or recommendations is usually less than 2 months.