Over the weekend, Barron’s “The Trader” column ran with this headline: “Techs Fail to Endorse the Financials-Led Rally.” Here’s an excerpt:

Judges scoring last week’s action awarded bonus points to how financial stocks — the rot at this bear market’s core — had led this advance. Wells Fargo (ticker: WFC) managed to raise dividends, JPMorgan Chase (JPM) managed to top estimates, and the $2.5 billion Citigroup (C) lost last quarter manages to be more meager than feared. As a result, there was little that was ambiguous about the Financial Select SPDR ‘s (XLF) 23% bounce off its mid-week low…

Can financials survive the summer without wilting?… Last week’s rally might have been more convincing, for instance, if financials’ advance was corroborated by technology. Instead, Microsoft ‘s (MSFT) muted outlook and concerns over Google ‘s (GOOG) advertising growth added to investors’ many qualms and suggested “the market may not be ready yet for a sustained move up,” Green says.


What I find ironic is that a far more important divergence exists in the daily charts of the financials and technology sectors. The financials, as everyone and their mom is painfully aware, have made new lows with every selloff this year.


On the other hand, Technology, since making a significant low in January, has seen higher lows (and higher highs) with subsequent selloffs – a basically bullish pattern.


So, looking at the big picture, the real headline should be “Techs Fail to Endorse the Financials-Led Selloff,” which is undeniably bullish and the polar opposite of the original.

Source:
Techs Fail to Endorse the Financials-Led Rally
Kopin Tan
Barron’s
July 21, 2008

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