I said I wouldn't comment on the banks, but I feel I need to say something, because they are the tail wagging the dog. Folks have divided themselves up into two camps when it comes to the banks. I call it the "Battle of the Banks."
The first camp is what I'd call, "shades of 2008." There is no middle ground for the bank bears. They see signs of 2008 in every statistic, every action taken by the Fed, the FDIC, the administration. They see contagion spreading.
The second camp is the one that says, "This is overdone, buy the banks." The thinking goes that the big banks will be the winners and this is an opportunity to buy the strongest banks. Even Barron's said so -- in their cover story! -- this past weekend. That should probably be enough to make the bulls jump into the bear camp! Or at least take a deep gulping breath!
What I find interesting in this battle is that very few folks seem to take the view that maybe we just don't know. Maybe we should take a wait-and-see attitude. I noted last week that the Bank Index has a measured target in the $75-$80 area and so far all we've seen is stabilization in that area. There hasn't been any real buying. I'm not even sure there has been any further selling. Just a lot of battling.
I would just go back to my comments from last week that we had an earthquake and earthquakes have aftershocks. In those days and weeks after an earthquake the buildings are still shaky, the gas lines are fragile and the rescue workers are still pulling people out of the rubble. Is it that big of a deal to wait and see?
As for Monday's rally I would use the word pathetic to describe it. Breadth was terrible. I mean the S&P rallied 35 points and net breadth couldn't even make it to positive 700. Nasdaq was even worse with net breadth flat. When you look at the Overbought/Oversold Oscillator you can barely see the tick up.
When you look at the S&P (brown) with the chart of breadth (blue) you can see breadth down as the S&P goes up.
Yet, we are oversold using many of the indicators I use, both intermediate-term and short-term. And while the rally on Monday lifted the Daily Sentiment Index (DSI) from 16 to 21, the reading at 21 is still the sort of reading that says to me if we give back some or all of Monday's rally we'll be right where we were coming into the week: oversold with a low DSI. So, despite the pathetic rally and the crummy action in the banks I still think we rally again this week.