Wednesday, July 30, 2008


Today's market action was up nicely, amidst rumors on CNBC that the financial sector is moving up from mid-July lows. Here's a graph of XLF, the financial ETF that is at least treading water, and might be turning around. (Then again, it might just be regrouping and forming an intermediate base and then dropping some more.) Maybe the Bear Stearns fall-off in July really did form the low, as evidenced by the volume spike, and the recent Merrill Lynch news of the write-down will open the floodgates for more buying again. That is what I prefer to think. There was an interesting segment on Larry Kudlow analysing the news from Merrill both ways, as a good deal, or as an embarrassment. The financial sector is an amazing bargain at these prices. Doesn't it look like it will double before long?

On the other hand, the following chart of all historical information on XLF back to 1999 shows a more bearish graph, with lows reached at 20 in early 2000, about 19 at the end of 2002 and now about 17.5 mid-2008. It could go either way, from the look of the chart, in my view. Let the Buyer beware! It could make a long slow, up move from here, at least for awhile. Or does this look like the chart of a bubble? Maybe not that large a bubble! Let's think financials, along with everything else, turn around from here. Surely, by now, software has replaced much of the human element of the market. For the most part, that is for the better, I would say. Pity the ETF chart doesn't go back further.

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