Tuesday, October 25, 2011

Value or Value Trap?

Here are two charts I created from yesterday (XLF) and the weekend (FLAT) that I provide as a primer to what's been on my mind as of late. Namely, is the recent strength exhibited in the financials sustainable - or is it just an oversold bounce within a continued downtrend? I have looked at the sector from a variety of perspectives in the past few months - and find myself no wiser for it. There are arguments that can be made on both sides of the field that have significant ramifications to the overall market. While I believe the sector is trading with significant value to book today - it certainly can get even cheaper - as it did in 2008. From what we know about the leading relationship the sector holds with the market, you could make a logical argument that the SPX will eventually make its way back to the lows in 2010 - as the financial sector has already undercut their respective lows.

More to come in this line of thinking.