Friday, December 7, 2007

Financial Services Downgrades Losing Impact

Financial Services continued to be downgraded heavily this week -- yesterday's slew of Merrill downgrades being just the latest. Talk about being late to the game and calling the kettle black!

Below is the six month chart of the Ultrashort Financials Proshares (SKF)(moves -2X). Notice the head and shoulders formation, and more importantly, the lack of downgrade impact as the ETF has backed off of its highs. At its peak, SKF was up nearly 70% this year -- now it's closer to 30%! Could we have seen a bottom in this sector Mr. Paulson? What say you Mr. Bernanke? Hmmn?

P.S. - I will post the long promised Market Sentiment System revisit over the weekend. Yes, that VWAP study is yet to come. My guess is that it only works during the strongest of persistent-trend volatility days. Why? By the time you have observed the reversal and take the next bar, the edge is likely gone. That's not to say I assume it will be an absolute bust. Let's wait for the numbers to tell the story.

P.S.S. - What, you are thinking about going (double) long! Try UYG. Sometimes I just find it easier to turn things upside down! Be careful, still tricky out there.


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