Banks are now off 50% (well, 49.6% to be exact)
Market Alert! 2008.06.19
Based on my note below, today I increased my holding in KBE by 37.5% (in other words, I committed a lot of new money to the banks).
Just a quick note on the KBW Bank Index (BKX). A few miserable weeks after breaking major short term technical support of 75, as of early this morning the BKX had pretty much fallen to 10-year support at 60 (its intraday low today was 61.03, but by end of day it rebounded to close at 63.47). That officially put the big banking sector index down 49.6% from its all-time record high of 121.16 that was set intraday on February 19, 2007.
During the past 10 years, the BKX has only dipped below support of 60 for one day, October 5, 1998 (by that afternoon it had closed at 63.90). So, this week's trading means that one of two things is now happening: 1) The banks are in the process of successfully testing long term support and will not break below it (for more than a few weeks), in which case the sector is officially making its current bear market low right now, or 2) The banks are going to fail this test of long term support and the BKX will fall below 60 (for more than a few weeks), in which case it could get really, really scary in the next six months! And I do not just mean scary in bank stocks, but scary in the entire U.S. and possibly world financial markets!
What do I want to happen? I am fine with either scenario, because over the past six months I have built up a substantial position in KBE, the ETF that tracks the BKX index. If the sector has bottomed, I will not be upset with myself once the rebound occurs because I have enough money on the table to make a respectable profit when that happens. But if banking continues tanking, then I am prepared to further add to my position in the sector. Long term, I don't think you can lose money if you buy banks at the current or any future lower prices that may come a knocking at the door. And if long term (meaning up to 10 years) we do end up losing in KBE at today's price, then America and the world will have a lot more to worry about than the loses in their bank stocks! (Unfortunately, I cannot rule that out!)
The banks will clue us in on their next move soon. Until then, Happy Investing!
Gregory
Based on my note below, today I increased my holding in KBE by 37.5% (in other words, I committed a lot of new money to the banks).
Just a quick note on the KBW Bank Index (BKX). A few miserable weeks after breaking major short term technical support of 75, as of early this morning the BKX had pretty much fallen to 10-year support at 60 (its intraday low today was 61.03, but by end of day it rebounded to close at 63.47). That officially put the big banking sector index down 49.6% from its all-time record high of 121.16 that was set intraday on February 19, 2007.
During the past 10 years, the BKX has only dipped below support of 60 for one day, October 5, 1998 (by that afternoon it had closed at 63.90). So, this week's trading means that one of two things is now happening: 1) The banks are in the process of successfully testing long term support and will not break below it (for more than a few weeks), in which case the sector is officially making its current bear market low right now, or 2) The banks are going to fail this test of long term support and the BKX will fall below 60 (for more than a few weeks), in which case it could get really, really scary in the next six months! And I do not just mean scary in bank stocks, but scary in the entire U.S. and possibly world financial markets!
What do I want to happen? I am fine with either scenario, because over the past six months I have built up a substantial position in KBE, the ETF that tracks the BKX index. If the sector has bottomed, I will not be upset with myself once the rebound occurs because I have enough money on the table to make a respectable profit when that happens. But if banking continues tanking, then I am prepared to further add to my position in the sector. Long term, I don't think you can lose money if you buy banks at the current or any future lower prices that may come a knocking at the door. And if long term (meaning up to 10 years) we do end up losing in KBE at today's price, then America and the world will have a lot more to worry about than the loses in their bank stocks! (Unfortunately, I cannot rule that out!)
The banks will clue us in on their next move soon. Until then, Happy Investing!
Gregory
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