Thursday, February 16, 2006

Looking At Sector Leaders: Banks

Check out the Trading Markets site Friday AM; I should have a detailed article on this topic posted then. Over the past three sessions, we are up more than 2% in both SPY and the banking stock index BKX. I decided to look at what happens when this is the case.

Since March, 2003 (N = 743) we have had 50 days in which SPY has been up by more than 2%. Over the next five days, SPY has averaged a gain of .55% (33 up, 17 down), which is stronger than the average five-day gain of .30% (434 up, 309 down) for the sample overall.

Interestingly, however, when SPY and BKX are both up more than 2% in a three day period (N = 36), the next five days in SPY average a gain of .95% (24 up, 12 down). When SPY is up by more than 2% in a three-day period, but BKX is up less than 2% (N = 14), the next five days in SPY average a loss of -.48% (7 up, 7 down).

In short, the bullish prospects for SPY appear to be better when banking stocks are participating in market strength. We'll count this as a positive for the bulls going forward.