S&P Financial Sector Monthly Charts

Jul 15, 2008: 6:15 PM CST

With the talk of the Financial Crisis getting more attention in the media, let’s look at the long-term chart of the S&P Financial Sector and the XLF (AMEX Sector SPDR).

S&P Financial Monthly Index:

XLF ETF:

What we’re seeing is a massive collapse in share prices and trend.  Price has now made new monthly lows (remember the month is half-complete) not seen since the late 1990’s, and price has fallen precipitously in value across a wide range of financial stocks.  There are very few pockets of safety in this sector/industry.

Generally, we expect the market to discount the future, and assimilate all known news into the prices of stocks – if so, what’s yet to come in terms of news announcements with share price plunges so dramatic?  Will more banks collapse?  Is this just the beginning (Indy Mac, Freddie Mac, etc)?

I’ll let the charts above speak for themselves rather than taint them with massive annotations.

Notice the volume surge on the XLF exchange traded fund.  Although I don’t display the volume numbers on my charts, monthly volume comes in currently around 2 billion shares – institutions are even at work clearing their accounts of these stocks.

Dr. Steenbarger recently posted a great analysis of regional banks in the following posts:

Banking on Bailouts: How Many IndyMacs are Out There?

The Geographic Distribution of Troubled Banks

A Regional Bank Collapse: No Moral Hazard Here

Many investors are becoming tempted to pick up shares now in these regional banks, some of which have lost 80% of their value since the October highs, and some of which trade less than $10.

While indeed some of these may be trading at excellent values and may return to much higher stock price levels later (say, 5 to 10 years down the road), there’s a good chance some of these banks may go the way of Bear Stearns, Indy Mac, Freddie Mac, etc which have virtually collapsed.

While there may not be better ‘values’ elsewhere in the market, there still is likely a good bit of risk and announcements yet to come regarding banks in this sector.  Do be careful and do your due diligence in fundamental research on stocks you may be tempted to buy – do not do so simply because you feel the price is “cheap.”

Whether you’re holding, buying, or selling, do be careful – and do keep your wits about you during these uncertain and troubling times in the market.

1 Comment

One Response to “S&P Financial Sector Monthly Charts”

  1. Don Da Mon Says:

    Concerning the statement “I’ll let the charts above speak for themselves rather than taint them with massive annotations.”. Can you provide an analysis of this chart? Can a near term bottom be targeted, for example? What annotations would you make?