Wednesday, August 10, 2011

And We're Back: Why We Listen to What the Financial Stocks are Saying (BAC; C; JPM; WFC; XLF)

Just for future reference, I am not in need of "Attaboy's", however well intentioned.
Cash is preferred.

It is, however, nice to know that a bit of foresight which helps to avoid the "Oh my God, we're all gonna die" syndrome is appreciated.

According to Maslow when you're down at the bottom of the hierarchy, dealing with the physiological or a bit higher up, the safety needs:

  • Personal security
  • Financial security
  • Health and well-being
  • Safety net against accidents/illness and their adverse impacts
That's all you can think of.
Human beings in "We're all gonna die" mode tend to be poor joke tellers.
So, if you can mitigate some of the risks, you have a better chance of thinking with your forebrain rather than going all limbic in your reactions.

Last winter and spring we had a few posts on the action in the financial stocks:
Jan. 17 
How Dysfunctional Is This Market? (SPY; XLF)
...Most of the proceeds the primary dealers receive from the Fed for the QE2 purchases are going back into frontrunning the Fed (see "Is QE2 A Stealthy $90 Billion Gifting Scheme To The Primary Dealers?" (BAC; C; GS; MS; JPM; HSB; UBS)) quite a bit is also going toward levitating the AAPL's of this market....
April 6 
Wall Street, We Have a Problem, Over (Major Financials Appear to Have Double Topped) SPY; XLF
The S&P Financials ETF (XLF) is up 11 cents at the day's high, $16.61.
A party without the financials isn't much of a party....

...Today the ETF cleared the 50-day moving average, a definite plus but should the XLF fail to top the February 2011 highs of $17.20 intraday and $17.18 closing, I think I'm going to mosey a bit closer to the exits.

April 11 
Raymond James Pounds the Table on Biggest Banks, Market Yawns (BAC, C, JPM; XLF)

And a couple others that I can't recall right now. but you get the picture:
Here are the financials vs. the S&P 500:

The financials are a leveraged bet on the market which in turn is a leveraged bet on the economy.
They are traded by some of the smartest folks in the world and because of that have had at least a modicum of forecasting value for as long as I've been at the market.

In the case of the bull run off the March 9, 2009 bottom the financials led the charge right up to September 2010.
They then handed the baton to other S&P groups but continued to track the broader market 'til March 2011.
Then they broke down as the market went on to new highs in April.
Finally the run down the rapids leading to the waterfall decline of the last few weeks.

Amazing what you can hear if you listen. Even distant waterfalls.

Here's the current state of play at MarketBeat:

Bank stocks are awful, just about the worst market sector in the universe, but hey — at least they’re not doing as badly as they did in the 1930s. Yet.
Birinyi Associates sends us this frightening chart, which shows the lost decades for bank stocks that followed the Depression. Banks have been more volatile this time, but it’s early days yet.
This is a chart of the S&P money center bank index for the ’30s and the KBW bank index for the present day. Both are indexed to the start of their crashes.

Click for larger image