Monday, September 22, 2008

Financials look interesting

Here is a long term trend for the XLF. Too many lines, but somewhat necessary.

Now, I usually don't trade the financials, but I am getting interested. The trendline was violated intraday twice, but both times the index closed below it as well as the 100 DMA. You also see that it has been healing very nicely the last 3 months, as it moves sideways. As the VIX moves higher for a possible double top. at the 36-38 level

I will be very interested in trying a long in UYG. If the VIX does spike again, that means people will be panicking (again), a perfect time to buy and try to catch a bottom. If you do try this, I recommend using SMALL positions with stops. That way you can easily walk away unsuccessful.
On second thought, UYG is very screwed up do to the ban on shorting, so I am not sure how profitable this plan will be.

The extremely difficult part is determining where XLF will bottom. Right now it has closed at the 10 DMA, below the 20 and 50DMA. These might act as support, but seeing as how they have already failed, we will not rely upon them. Instead I would expect some support in the 18-19 level or even possibly slightly higher. At these prices, people who missed the first rally should step in and buy, causing another rally into the 22-23 range.

But then again, I can be completely wrong and we make new lows! But I believe the perceived value in these companies are too great for this to happen.