Wednesday, January 21, 2009

Financials Still Collapsing

From IBD:

Financial shares crashed to new lows after top asset management firm State Street and a regional bank reported huge losses, putting pressure on President Obama to come up with quick solutions to a rising tide of red ink.

State Street (STT) said it may need to raise capital following huge unrealized losses in its commercial paper program and investment portfolio. Meanwhile, Regions Financial (RF), a big Southern bank, lost $6.22 billion in the fourth quarter on massive write-downs.

The bad news sent the SPDR Financial ETF tumbling 16.5%, its fourth straight drop and a record low. It's down 35% in 2009 alone.

Bank of America (BAC) lost 29% and Citigroup (C) 20% after both reported big losses last week. JPMorgan Chase (JPM) dived 21% and Wells Fargo (WFC) 24%.

All the banks cited above hit long-time lows.

As we enter earnings season expect more of this to happen. The bottom line is there is still a ton of bad debt out there which is deteriorating in quality. As that happens, banks will continue to take hits.

Here is a chart of the XLF -- the financial sector ETF:

Click for a larger image

Notice the following:

-- Prices have been dropping for a year and a half

-- Prices have continually moved through previously established lows

-- All the SMAs are moving lower

-- The shorter SMAs are below the longer SMAs

-- Prices are below all the SMAs

-- The MACD is moving lower

-- The RSI indicates prices are weak and have been for a long time.