Lehman Brothers may appear to have escaped the investor panic that brought down Bear Stearns, but is it too early to jump back and buy financial stocks?

Many professionals think that the financials are not done yet. It’s just not the time to buy yet as you may have to wait for the housing to stabilize first.

Kathy Boyle, president of Chapin Hill Advisors, is pointedly bearish on the market, particularly because of the troubles posed by financials.

She expects the market to drop significantly over the summer, with the S&P 500 falling to 1,080, the Dow tumbling below 10,000, and the Nasdaq sinking to 1,530.

The Financial Selected Sector Fund (XLF) weekly chart, there are clear indications of a bearish trend continuation after forming a bearish flag. The support at 24 seems rather weak and could be force through quite easily. The MACD histogram is on the down hill and the 1 week SMA had crossed the 5 weeks SMA further strengthening the possible collapse in the financial sector.

This will be good news to me as a bearish reversal player, I was watching closely as I am still holding on some puts position on the financial stocks. This could be a very good opportunity to hold some puts for some quick profits on the way down. The Implied Volatility will expand fast when it start to fall because many will buy the puts to hedge against their stocks positions. This will further increase the premium of the options. Remember stocks fall faster then going up but be safe have a stop on all your trades as anything can happen.

“Chance favors the prepared mind” - Louis Pasteur

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