Thursday, October 9, 2008

Finding the Bottom - A Look at the Financials

I wont be recommending any longs or shorts for a few days/weeks. This market is just too crazy. Instead I will analyze daily charts and see what it takes for a bottom. Lets look at XLF


JPM 9.218056651

BAC 6.510135477

WFC 6.179692435

C 5.123050887

USB 3.634949945

GS 2.955375767

CME 1.973219748

BK 1.920944935

AXP 1.78970732

V 1.620253917

PNC 1.506434474

AFL 1.371868465

TRV 1.315713295

STT 1.288288608

SCHW 1.250596422

MER 1.242658985

BBT 1.133600549

SPG 1.095058279

ALL 1.083789115

PRU 1.029060551

Now the chart.

Alright! Fresh all time low. No support! Yay! -64% from the highs. Since the XLF is the sector that is causing all the problems, lets compare it with QQQQ during the dot com bust. It went from 120 to a low of 20, an 83% drop. So by those standards, the bottom should be... 6.5 (ouch). Is that reasonable? It seems like a stretch since the height of the dot come bubble brought about huge valuations for companies, but then again this disaster should also take away huge valuations from banks. I would at least expect continued downside from here, hopefully not straight down like it has been doing lately. Right now the XLF is at the bottom of the trendline, this doesn't mean much since all other indexes have broken their trendlines, but just a thought.


-43% from the highs. 12.5% away from the from the 2002 low.

Looking at this chart, I think the most probable case is that we bottom BELOW the 2002 levels. Although this recent drop has been VERY VERY quick, it is about the same as the last and final drop before the 2002 bottom. Maybe some hope.