Sunday, March 23, 2008

WTF Among the Financial Stocks?

My recent posts on Money Flows have focused on the Materials, Industrials, Consumer Discretionary, Consumer Staples, Energy, and Healthcare sectors. This post examines five highly weighted issues within the Financial stock sector, tracking Cumulative Money Flow (top chart) and Five-Day average flows (bottom chart) against the XLF (Financial) ETF. The stocks included in the calculations are C, AIG, BAC, WFC, and JPM.

Like the Healthcare issues, Financials have shown recent weakness, breaking below their January lows during the latest market leg down. Observe, however, that we did not see a new low in Cumulative Money Flow, suggesting a possible drying up of selling pressure.

We've since bounced nicely off the latest lows on news of Fed intervention, but note that five-day money flows have stayed weak on the bounce. Much of market skittishness concerns the troubled financial sector; sustained dollar inflows would suggest a renewal of confidence among investors. Thus far, however, though we have seen less intense selling pressure on declines, we're not yet seeing sustained buying interest on bounces. I will be watching flows in this sector particularly closely given this dynamic.