I write about the financial and banking sector quite often in my columns, and I have been warning investors to stay away from this area of the market since June 2007. Over the sector's steep drop over the past year, there has been plenty of bottom calling on the way down. I believe the recent sharp "V" move up was likely sparked by short-covering, and that does not usually set a stage for a major move higher. You can see on the charts that the move failed soon after and now looks like it's at least headed to test those lows. A more detailed look is in order, which I will do in a bit, but right now, I'm very pessimistic about this sector.
Some continue to argue that the Bear Stearns failure and the bailout of Fannie Mae (FNM - commentary - Cramer's Take) and Freddie Mac (FRE - commentary - Cramer's Take) are a sign of the bottom. I'm having a hard time believing that, since the credit crisis is not just a housing crash. It is also a mortgage crisis and a credit crunch that could easily overflow into the commercial real-estate markets and even filter down to credit-card holders. If you bail on your home loan, it is doubtful the credit-card holders are likely to keep paying on that debt when they could wipe it all out in bankruptcy.
The big gorilla is the almost $150 trillion in derivatives held by U.S. banks. No one really knows the true value of these assets. Then you have leveraged loans that were used to finance large deals by private-equity firms and corporate takeovers in recent years that companies are having a hard time repaying. Finally, the FDIC currently has over 90 banks in the U.S. on their watch list for risk of failure, and no one really knows how large this list should really be.
Technical Analysis Fitz Bits: A Bottom for Foster Wheeler? 8/28/2008 1:29 PM EDT The stock saw a nice move up on good volume, but caution is still the name of the game here.
Technical Analysis Shippers Have the Wind at Their Backs 8/28/2008 11:03 AM EDT Despite a recent downturn, the fundamentals and technicals suggest their rally isn't over.
At time of publication, Manning had no positions in the stocks mentioned, although holdings can change at any time. Mark Manning, AAMS, is an Accredited Asset Management Specialist and Registered Investment Advisor with Butler, Wick & Co., where he specializes in wealth management. Under no circumstances
does the information in this column represent a recommendation to buy or sell stocks. Manning appreciates your feedback; click here to send him an email.
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