Tuesday, November 13, 2007

A Closer Look At the Financial Sector

Today we saw a rally in financial shares.

But the fundamentals of this sector are still terrible. We've seen a ton of writedowns over the last few months (if memory serves, the total is nearing $50 billion). So what we're seeing here is bottom fishing. People are looking at the chart and thinking, "gee, that looks really cheap". But there are some serious problems with this.

1.) We don't know if the writedowns are over. And I seriously doubt they are.

2.) Just because something is cheap, doesn't mean its good. And again, right now, financials aren't good investments.

3.) Note the chart's technicals. Prices are still below the 200 day SMA by a wide margin, the SMAs are all moving lower and the shorter SMAs are below the longer SMAs. This is still a bearish chart in a big way.