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Banking, Finance and Insurance all strong

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On part of my trading screen that has been green for the better part of the morning are the Banking/Finance and Insurance sectors. This tells me the MARKET is counting on a rate cut very soon. What traders need to understand is that you don't want to be trading against this trend in this sector right now. What traders also need to understand is that there has probably been a lot of shorting/putting going on in these groups regarding a "stagflation" scenario and there are some paper losses currently being incurred in those account. The reason we DO NOT want to trade against this trend is for this simple reason. If paper losses start become realized losses (positions closed out) that could fuel a move higher. With many consumer confidence readings at lows, the MARKET may have already factored in much of the bad economic news and this could be hazardous. While I admit I'm rather perplexed with how the banks are holding up, this goes back to points I've made in the past about trading every stock/index on its own merits. Yes, the action we've seen with bond YIELDS falling and the Gold/Silver Index (XAU.X) rising has had a negative effect on the NASDAQ Composite (COMPX) it has NOT had the same type of effect on the banking stocks. We are aware however that while the MARKET may be anticipating a rate cut by the Fed, we will also need to monitor the MARKET reaction once the rate cut is announced, IF it is announced or given. I wrote an article a while back titled "Bank relish rate cuts" and that definitely seems to be what is taking place currently.

Snapshot of Indexes and Sectors at 11:28 EST

While I've been eyeing a put/short in the banking sector, my trade station index screen from Q-Charts (www.quote.com) shows the finance group is strong. Also at the bottom of my index table I have grouped together Gold/Silver Index along with bonds. Remember that the bonds reflect YIELD and if they're red (they are) that tells us there is buying taking place in bonds!

Jeff Bailey
Staff Analyst

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