US Financial Sector Update

The Dow Jones Industrial Average broke its Nov 2008 lows this week. It closed below its psychological low of 7552.29 on Thursday trading session. This point to further weakness down the road and the index may go down further to test 6000 level.

Rumors that Bank Of America and Citigroup could be nationalized brought pressures to the financial sector. The White House on Friday insisted that the US government is not trying to take over the two financial institutions. Bank Of America closed at $3.79 and Citigroup closed at $1.95.

The financial sector is still deep in “Bearish” territory. Looking at the XLF, the sector fund tried to move out of “Bear” territory but fell right back into it on 7 Jan 09. It has since stayed in “Bearish” phase for 31 trading days.

It looks like the market needs to find a lower bottom before a rebound can take place.

Commodity Sector

Commodity seems to be making a come back recently. The Baltic Dry Index (BDI) has rebounded from a low of 663 on 5 Dec 08 to close at 1642 on 6 Feb 09. Commodities related stocks in Singapore showed strength this week.

Let’s look at the commodity sector as a whole to see which phase we are in.

The iShares S&P GSCI Commodity-Indexed Trust is a fund that investor invest in a portfolio of exchange-traded futures contracts tracked by the index. The index currently tracks 24 different commodities. It is weighted with approximately 67% invested in energy, 16% in agriculture, 7% in industrial metals, 7% in livestock and 3% in precious metals. The index is production weighted to reflect the relative significance of those commodities to the world economy.

The GSCI commodity index trust is now sitting in “Bearish” mode. The index tested its 50 day moving average on 6 Jan 09 but was not able to maintain its bullish momentum.

The index looks to be forming a double bottom and the 50 day moving average looks to be forming a base. It is too early to be bullish on commodities based on the phase chart. We need more evidence of a sustainable rally and the picture will look better if it can move above its 50 day moving average.