Don't Be Fooled by Rally in the Financials
by Sam Collins 07/14/09
The financial sector led a broad-based rally yesterday, following an upgrade of Goldman Sachs (GS) by premier banking analyst Meredith Whitney. Strength in the regional banks (+6.3%) and diversified banks (+8.0%) was due to bargain-hunting, which drove the KBW Bank Index (BKX) up 6.5%. Goldman is due to report earnings today.
Banks also made a good showing in the blue-chip category with Bank of America (BAC) rising 9% and JPMorgan Chase (JPM) up 6.8%. However, all 10 of the S&P sectors showed gains of at least 1%.
At the close, the Dow Jones Industrial Average (DJI) was up 185 points to 8,332, the S&P 500 (SPX) rose 22 points to 901.05, and the Nasdaq (NASD) rose 37 to 1,793.
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Again, volume was light. On the NYSE, 1.2 billion shares traded with advancers ahead of decliners by 5-to-1. On the Nasdaq, advancers led by more than 2-to-1 on volume of 669 million shares.
August crude oil fell 20 cents to $59.69 a barrel, and the Energy Select Sector SPDR (XLE) rose 68 cents to 1,793.
Gold for August delivery rose $10 to $922.50 amid talk of short-covering rather than any economic news. The PHLX Gold/Silver Index (XAU) rose $2.26 to $132.25.
What the Markets Are Saying
Yesterday's bounce on low volume is helping to trace out a channel-down situation with tops for the Dow on June 11 and July 1, and bottoms on June 24 and July 8.
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Investors Should be Back on the Defensive
Yesterday's triple-digit loss puts the indices very close to some major technical break points.
Powerful high-volume buying is making the ProShares UltraShort Financials (SKF) look like a good day trade.
Should You Jump on the Rally Bandwagon?
I agree that the last hour of buying on Friday, especially buying in the blue chips, was quite impressive. But the reversal barely occurred, with the S&P 500 gaining just over 3 points.
DEE is a very volatile, speculative ETF that is designed for the day trader.
The One Place You Do Not Want Your Money
This is time to cull, not sell everything, but there is one sector you want to avoid at all costs right now.
