Indices: Pay Attention to the Trend to Understand the Market

I started warning investors about the brokerage and financial stocks back in June 2007 and again in August 2007. Since then I've continue to state that I would stay away from this sector until we have some idea how deep the subprime the debacle goes.

There is a good possibility that we may see a bounce up to the $29 to $32 area, but the trend continues to remain down.

Financial Sector Select SPDR (XLF Quote - Cramer on XLF - Stock Picks)

Click here for larger image.

Source: TC2000

If you are a long-term investor who is strictly investing in mutual funds or ETFs that mimic the general market, and have a long-term horizon over three to five years, the recent action will likely look like a small blip on the screen.

However, if your focus is anywhere between intermediate- and long-term, then it will be important for you to pay attention to what the market is saying to avoid taking unnecessary risks and losses .

Unless we see some catalyst that can inspire the market to move dramatically higher, the current rally will likely give investors a chance to raise cash in order to have better buying opportunities in the future.

This column was originally published on RealMoney. For more information about subscribing to RealMoney, please click here.

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