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Moby Waller is Portfolio Manager for BigTrends.com's Index Options Timer (http://www.bigtrends.com/products/indexoptionstimer.html) and Advanced Options Strategies (http://www.bigtrends.com/products/advancedstrategies.html) advisory programs and is a Research Analyst and Trading Coach... More
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  • Will Underperformance by Banks Contaminate the Market? 2 comments
    Nov 5, 2009 02:14 PM | about stocks: SPX, SPY, BAC, C, JPM, USB, WFC, KBE
    The Financial sector led us into the market meltdown of the past couple of years.  Since the market bottomed in March, however, Financial shares have led us higher.  So what is this important sector, specifically the Banks, telling us now?

    Let's take a look at the performance of the diversified S&P 500 Index (SPX) (SPY) versus the long-standing KBW Bank Index (BKX).  In the first chart below, you can see that the BKX has basically doubled the gain of the SPX since the March 9th market bottom.

    SPX vs BKX Performance Chart since March Bottom
    dtw110509bkxa


    However, this outperformance trend appears to have shifted over the past month -- examine the next chart.  Since October 14th, the BKX has lost about 13% of its value, while the SPX is down only 2.5% in that time frame.

    Given the importance of the Financial sector, especially Banks, to the economic health and recovery of the U.S., this divergence looks to be a possible ominous sign for future broad market performance.  Many have long considered Financial stocks to be a leading indicator for the markets.

    SPX vs BKX Performance Chart since October 14
    dtw110509bkxb

    What comprises the BKX Index?  Following is the holdings as of 11/04/09, source here.  The top 5 holdings, each over 7% of the Index, are Bank of America (BAC), Citigroup (C), JP Morgan (JPM), US Bancorp (USB), and Wells Fargo (WFC).

    BKX Holdings
    dtw110509bkxholdings

    Bottom Line:  I would view this current underperformance by Banks to be a serious warning sign should it continue and/or accelerate.  It may be indicating that there are further legs to drop in the global financial recovery. 

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

    Disclosure:  No current Bank sector or stock position or client recommendation.

    Themes: Bank Sector, BKX, KBW Bank Index Stocks: SPX, SPY, BAC, C, JPM, USB, WFC, KBE
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This post has 2 comments:

  •  
    The financial sector is a uniquely bad one at this time. It needs to be avoided "like the plague," (like telecom, media, tech, almost ten years ago) for some time.
    Nov 05 06:54 PM | Link | Reply
  •  
    Do you think the foreign banks should be avoided, too?
    Nov 05 11:43 PM | Link | Reply
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