Can the Financials go any lower ?
2007 has been a year characterized by one word in the Financial sector - Subprime Mortgages. Most news channels, financial newspapers, analysts were busy this year trying to figure out how bad this situation is. Which banks will have to report increasing losses relating to bad debt, which institutions will have to fold in? Nobody knows the answers. It is doubtful if even any of the major banks are completely aware of their exposure to this financial fiasco.
Ofcourse, at Profitable Candlestick Charting, we do not try to analyze this situation from the fundamental point of view. There are enough bright minds trying to do just that. Our main goal is to gauge what the market is trying to tell us. We teach our trainees to read the market language via candlestick charts. Charts do not lie. The candlesticks are formed as a culmination of all the knowledge of the traders and investors out there in that time frame. If the smart money is bullish on a stock or even an entire sector, the chart will reflect it. The same is true if the smart money is bearish on a stock or sector.
The market, via the candlestick charts will reflect the change in investor sentiment long before the actual bullish news starts flooding the news channels. The market is a harbinger for any news, good or bad. Learn to trust the market.
Having said that, what do the charts say now?
We have included charts for three financial companies below. There is one common theme in all three. There is no evidence of any bulls stepping in to reverse the downtrends in any of them. All of them are oversold as seen by their stochastics. But, oversold stocks can stay oversold for weeks, months, even years. Notice from the charts that, all the stocks are below their 50 sma and 200 sma. some obvious downtrend lines can also be visualized.
To change such a downtrend, the investor sentiment will have to undergo a major shift. In short, there are still strong sectors (like the solar) where bullish sentiment is prevalent. Make money there right now. Traders can indulge in quick trades in the Financials, but investors should stay on the sidelines until, the stocks overcome resistance.
Chart courtesy stockcharts.com