Wanna Buy Banks? It’s Ok to Wait.

Rob Curran attempts to calm the fears of those who think it’s too late to buy banks.

Worried you missed the action in financials?

Relax. If the stock-market cycle were expressed in terms of opening hours, one market technician says it’s about 4:15 a.m. at the bar, with a few diehards ordering refills and the likes of John Thain sweeping up the broken glass from last night’s overindulgence.

“I would resist the temptation to buy, and try not to be seduced by what is heralded as some major bottom,” says Carter Worth, chief market technician at Oppenheimer & Co., who sees the recent move as a “countertrend rally” and recommends shorting the financials.

This corner bar is going to be dead for a long time yet, and there won’t be a cover to get in for years, Mr. Worth says. “Bottoms are long in the making,” he adds.

When charts establish downtrends as momentous and definitive as those of the XLF, and for that matter Fannie Mae and Freddie Mac, technicians expect the trend to end with a “consolidation phase.” That would be a period of weeks or months where volatility dries up, and the stocks just go nowhere.

Technology stocks didn’t have a rebound while everyone was talking about the Dotcom bust in 2001. They did so in very quiet conditions, beginning late in 2002, when they were dismissed as a dead asset class and all but forgotten.

Cleve Rueckert, a research analyst with Birinyi Associates, recommends waiting for the moment when stock prices, the 200-day, and 50-day moving averages flatten out all at the same time – a flatline on the chart rather than the current jagged pattern.

At about $21.50, the Financial Select Sector SPDR, is roughly 25% above its closing nadir of $17.17 on July 15. Still, the market witnessed several short-term rallies since financials first took a dive in August. For every “kitchen sink” quarter issued in the last several months, there has been a surprise from another financial institution.

As Pete McCorry, senior equity trader at Keefe Bruyette & Woods said recently: “This is one party I don’t mind being late to.”

http://blogs.wsj.com/marketbeat/2008/08/01/wanna-buy-banks-its-ok-to-wait/