We are afflicted if not assaulted by a sense of unreality. The banking system is a cancer on the economy. Buy Banks! Buy Banks! Paulson is doing it and he’s got enough money to defy reality. (According to reports buying BAC and C.) Well, who are we to say no. Someone described the banks’ present strategy as “deny and delay”. That is deny the rot on their balance sheets and delay hoping that they’ll make enough profits to cure their problems, and that real estate prices will also improve.
And the profits keep piling up in the bank positions. The hidden, or not so hidden risks in banks are enormous. Technical investors (presumably our readers) suffer less risk than the unwashed and uninformed. Because we set a stop under the position and bail out if they start heading south for the winter (a distinct possibility). In fact there may be some good shorts in here at a later date.
In the meantime, the charts cannot be denied:
KBE, with the stop set 5% under the August low.
XLF. Same stop tactic.
Remember, we always scale in to positions, and we never scale up until the chart so indicates. OK, sometimes on whim.