Financials Less Interesting After Big Pop

I’ve been getting a lot of e-mails and compliments since my post from Tuesday afternoon “Today Is The Bottom In The Financials” proved to be right on.  So I thought it would be useful to update my outlook.

Since then, over the last 3 trading sessions, the XLF is up 21% ($20.80 from $17.17) and volume has been massive (XLF YTD Chart). 

That’s a pretty good bounce and that’s really all I was looking for.  I still think we’re in a bear market, the overall trend is down, and the financials still face a tremendous amount of fundamental pressure that will hamper their stocks.

Interestingly, the volume on all three of the financial ETFs I wrote about on Tuesday was even higher yesterday (Thu) than it was on Tuesday: XLF: 527.7 million; SKF: 48.4 million; UYG: 141.3 million. 

I interpret this as meaning that a lot of the action has already taken place.  That is, a lot of the potential buying interest for the financials that was on the sidelines has now moved into these securities.  This reduces the amount of external demand still available to push the financials even higher.

Therefore, I’ve closed out my trading position in the UYG and I think the financials are less interesting going forward.  I think the lows we saw on Tuesday morning could hold for a while but the upside from here strikes me as limited and the risk/reward far less attractive.

Disclosure: Top Gun holds no position in any of the securities mentioned in this post.