THE DOT - if this turns orange or red be alert

Tuesday, June 3, 2008

Financials are poised to make new lows


The correction in June will be dominated by financials and even more so Investmentbanks (XBD) we are on the way to test the lows as anticipated and to make new ones in case of the BKX. We are in a flag formation which has support in the 70/1 area and should be tested the next weeks. The price action and momentum speaks volumes and even the mighty GS stock chart shows an obvious path to the south. A test of the 145/50 area is mandatory but even new lows beneath 140 are likely within this move. The whole picture will be accomplished by an overall weak technical picture since XBD and SPX broke out of rising wedges to the downside and SPX has even accomplished to build a head-shoulder formation with the neckline at 1370 both formations generate the same price target of 1300/05 which gives the magnitude of the broad market - imagine with the financials dragging down the indices how much XBD will have to loose in this context - a test of 140 level is the minimum we should expect. Looks like earnings season for brokers will be unpleasant - first sign was the LEH 'surprising' declaration to raise more capital although they insisted on two instances they had sufficient capital and they can borrow money from the FED even for toilet paper these days. The problem is that they cannot get rid of their exposure because it might wipe out their capital so they pray for better times and cook their books in the meantime - thats the trap of extended leverage and in a systematic risk management and supervision by the FED (Greenspan - in that way he really created opportunities for Pimco to make Billions) this should never had happened in the first place.

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