Because of the market selloff we wanted to shift some articles we have done for the professional version of our work into your "From the Analyst". We have done so with the Drug stocks and another article on the Healthcare stocks as well. Today we need to shift over an article on the Banks. What I was trying to get Tyler to show on CNBC yesterday was what I showed you a few days ago. How on the Normal Distribution of sectors we had a normal market. A washed out market looked like September 9, 1998. I could not predict whether we will see a market washout like 1998 but if we did move in that direction the pain would get much worse. Most importantly, there was a group of sectors that were too low and a group of sectors that were too high. I told Tyler that the sectors that were too low will eventually get too high and the sectors that were too high would eventually get too low. This has already begun to happen. The low sectors are internet, technology, telecommunications, and bi omedics. Those that were too high were interest rate sensitive and oil. Notice how the NASDAQ has dug in and the banks are giving up. Below is a feature we did for our professional service a few days ago.
Never forget the first premise of portfolio management is "Do No Harm". Second is "Manage Risk".
We'll be back on options tomorrow. I have a great play for you that I am sure you have never considered.
From the Daily Equity Report
Banks Breaking Down?
We are monitoring the Bank Sector closely as some of the indicators are starting to show some kinks. An analyst at Prudential Securities initiated coverage on 19 banks, some with the almost unheard of sell rating, which prompted us to look at some of these stocks a couple of weeks ago. You may recall we mentioned that this sector has existed with its indicators in overbought territory for an extended time as long as the relative strength has been able to hold up. The RS still looks OK, however, some of the other indicators have weakened and we have seen some bellwether bank charts deteriorate. Weakening indicator charts include the Percent Positive Trend chart (PTBANK). This chart has not yet reversed down but is within 1 1-2% of reversing down from 70%. We follow an Advance/Decline chart on the Bank sector (not yet on the database system) which has given a sell signal. It moved to a buy signal in December and last week it gave the sell signal, not a good sign for the sector.
Some of the bank stocks that appear to have rolled over are listed below. We will be covering this sector in greater detail later this week. Note that BK is currently a short position on the Trader's Corner.
BK - Bank of New York C - Citigroup MEL- Melon Financial JPM - JP Morgan FITB - Fifth Thiord Bancorp PNC - PNC Financial ZION - Zions Bancorporation
Bank Advance/Decline Chart
1850.00 ----------O-|-------------------------------------|-----
1800.00 O | |
1750.00 O | |
1700.00 O | X |
1650.00 O | X O
1600.00 ----------O-|-----------------------------------2-O-----
1550.00 O | X O
1500.00 O | X O 3
1450.00 O | X O X O
1400.00 O X X O X O
1350.00 ----------O-X-O --------------------------------X-O --O-
1300.00 1 X O X | O
1250.00 O | O X | O
1200.00 | O 1 | O
1150.00 | O X |
1100.00 ------------|-O---------------------------------X-|-----
1050.00 | 2 X X X |
1000.00 | O X O X O X |
950.000 | O X O X O X |
900.000 | O X O X A X |
850.000 ------------|-O-----------------X-O --O---------X-|-----
800.000 | O 9 O X X |
750.000 | O X O X X O X |
700.000 | O X O B O X O X |
650.000 | O X O X O X O X |
600.000 ------------|-O---------X ------X-----O-X-O-X-O --|-----
550.000 | O X O X O X O X |
500.000 | O X O X O X O C |
450.000 | O X O 8 O X O X |
400.000 | O X O X X O X O X |
350.000 ------------|-3-X ------6-O-X-O X-----O-X O-X ----|-----
300.000 | O X O X O 7 O X O O |
250.000 | O X O X X O X O |
200.000 | O X O X O X O X |
150.000 | O X O X O X O |
100.000 ------------|-O --4 --5-X-------------------------|-----
50.000 | O X |
0.000 | O X |
-50.000 O
More On Banks: Cover Up the Name
From the Daily Equity Report:
Today we wanted to follow up on yesterday's comments on the Bank sector. In that feature, we discussed briefly the deterioration we were starting to see in the group. Namely, the Advance-Decline line for the Bank sector has just given a sell signal; as well, the Percent Positive Trend chart for Banks (PTBANK) is very close to a sell signal. This PTBANK chart had reached overbought levels of 72%, and has slipped to 67% -- it will only take a move to 66% to give a sell signal, so as you can see it is on the verge. So we are slowly, but surely, seeing weakness creep into the Bank sector. Besides looking at these summary charts for the sector, such as the A-D chart and PT chart, you can see the signs of a topping sector by just looking at the individual charts that make up the group. Some of the charts look downright scary -- cover up the name, and ask yourself if you are comfortable owning any of them! Basically, we are seeing many of the member stocks breaking down and giving mult iple sell signals, coupled with violations of key bullish support lines. These sell signals obviously translate into a weakening Bank sector bullish percent reading. The Bank group had reached an overbought 72% on its sector bullish percent chart, and since that peak has downticked. A move to 66% would be a reversal down, and would be a sell signal for the sector by moving it to Bear Alert status. Our internal, preliminary calculations already shown that this bullish percent has downticked and could well reverse down this week. Given this sector deterioration, now is the time to take a proactive stance. By that we recommend that you take the time to evaluate all your positions in bank stocks. Many of you may well have substantial profits bui lt up in this sector -- protect those profits. Don't let them go the way of tech holdings. Be willing to play defense immediately after the ball has been fumbled, not when you're opponents have you at "1st and goal to go"!
With that in mind, we wanted to show you a couple of stocks that have shown signs of rolling over. If you own any of these names, play defense by selling a portion of the position, buying puts, selling calls, setting a stop loss point, something. Or, if you don't own them but are willing to take short positions, consider shorting any of these names on a rally back up. We may well get a pop out of these names after a Fed cut or leading up to the cut, if so, such a bounce may well provide you with a great shorting opportunity (or at least a chance to get out at a higher price if long). Below we show you four different names; there are many others we haven't included, such as MEL, ING, HBC, SWBT, WBK, FITB, that can also be considered for shorts or need to have a defensive posture assumed. For these four names below, we have indicated a few notes on each and where you may consider shorting them. |
