All indicators point to
an oversold market with high bearish readings and if you
study the Rydex Bull/Bear ratio, you can see that the
bearish sentiment is definitely high. We should see a
bounce any time soon, but the market is definitely in
trouble even with a bounce. I will be shocked if the
market can recover to a new high anytime during the
summer and that is what it will take to return the
market to a bull trend. The SPY has now fallen easily
through the 100 day and with today's decline we are
moving toward the March low of 1249. The problem with
the low is that it will break through the 200
Exponential Moving Average which is not a good sign at
all. If we can turn here and move higher than overall,
the S&P has made a higher low within context of the past
12 months, which confirms that the bull market is not
yet over, but it could take until the fall for the
market to set a new high.
BEAR MARKET IN FINANCIAL STOCKS
Here is the problem. Look
at the bear market in the financials! This is truly
shocking. This bear market in the financials is now
going into its sixth month. The problem for the
financials is the housing market. Without a real
recovery in housing the financials cannot truly recover
and investors know this. The problem with housing is
unemployment. Without higher employment numbers, people
cannot afford to be buying the glut of homes on the
market. Everything the Federal Reserve has done to keep
interest rates at or near zero, has failed to get
mortgage rates down. Banks don't want to lend, but
instead are rebuilding balance sheets with the Fed's
money. Mortgage rates cannot fall further because no one
is willing to lend at next to zero rates. Perhaps the
Federal Reserve should have loaned directly to home
buyers! Overall the quantitative easing has failed to
create a next to zero interest rate environment and new
jobs.
There can be no sustained recovery in the market with a
bear market in financials. Look at these charts.
Below
is Bank Of America, down 29% since January and today set
a new 52 week low.
Here is one of the stronger banks, Wells Fargo
and it is down 23.85% since February.
The next chart is truly shocking. Here is Citigroup. Down
26.4% even with the SPLIT. In fact look how the stock
just "tanked" after the split occurred. Imagine a stock
that goes through a consolidation, which in itself is a
disastrous event and now it is in another bear market.
What an unmitigated horrid investment Citigroup has been
since 2007. I can only guess at the hundreds of millions
of dollars lost by investors in this stock.
Finally here is Goldman Sachs. It too is down 24%.
All of these financial stocks are warning that there is a serious problem with the economic situation.
SUMMARY
At some point financials will turn up or at least have a
great tradable bounce. As I prefer selling options I
will probably not participate, but for those with iron
constitutions and capital to burn, they could probably
buy calls and some day it may be worth a lot. However
technically these stocks have been warning since the
beginning of the year that the market is in trouble.
Definitely since the market set a new high in Feb, the
new bear market in financials is a definite warning that
the bull market could be in trouble. Be careful out
there. Stay cautious. Even when selling puts, remember
that if you are not interested in owning the stock at
the value you are selling, then DON'T SELL A PUT. Cash
is way underrated as an investment, but there is no
doubt that at times, cash is the best investment. Right
now cash looks very promising. We should see a bounce
soon, but just because a market is terribly oversold
does not mean there has to be a bounce. Even if there is
a bounce, I plan to close more puts but I will be
waiting before placing my capital back into the market
for more naked puts. I don't believe we have seen the
bottom of this selling. It could be a wild summer..
