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.

US Financial Sector

Dow Jones Industrial Average closed slightly above 8000 points on Friday. The index was down 148 points on Friday after falling 226 points during Thursday’s session. Sellers are definitely in control.

In order for the market to recover, the financial sector needs to stabilize first and banks will need to provide liquidity to push up the market.

A look at the XLF shows that the financial sector in US is still trying to find a bottom. Unlike the Dow, XLF actually went below its Nov 08 lows of $8.54 on 20 Jan 09 before rebounding to a high of $10.51 on 28 Jan 09. It closed at $9.24 on Friday.

The phase chart shows that XLF is still in “Bearish” territory. It tested the 50 day moving average in the beginning of January. But the resistance proved too much for the bulls to overcome and sellers are gaining control again.

The next support level for XLF is at $8.00 level and if this support is broken, it will mean more pain for the bulls.