A decoupling, making me near-term bullish.
I don't often make market calls or try to "read the tape" for sentiment, but I do think something meaningful happened Wednesday, when US bank stocks lost another 5% (which is a really large drop), while the S&P 500 rose more than 2%.
To me, the market has seemingly traded down extremely sympathetically, if not outright arm-in-arm, with the health of the banking industry. And rightly so: Banking runs through, supports, feeds, and also partly reflects, the health of our nation's (and the world's) whole financial system.
So with the failure of so many banks, with the toxic nature of their assets, with the failure of their leaders and visions and business models and the list goes on an on, we have all taken a very huge hit... and as I've written in the past, we are part of the problem as well, willingly and greedingly seeking too much loan for too much house with not enough downpayment and not enough skepticism. I'm not one who routinely blames it all on the banks -- I will blame you and me every bit as much -- every one of these loans was a handshake between two parties.
That said, if US banks suck -- and every bit of evidence suggests they do -- there are other banks. *And* there are new banks that don't yet exist that will come as new start-ups. The banking system will be restored, and it may not look very private-sector American anymore -- it may look more like Uncle Sam, and/or it may operate from foreign capitals. No matter -- banking will happen, it will become whole again. In the meantime, there is a crisis of confidence and leadership, and that crisis more than anything is behind a nearly unprecedented halving of the US stock market over 18 months' time.
... for us to find US banks take another 5% left-hook to the solar plexus from angry investors today, while by contrast -- and even technically including banking-sector losses -- the overall market shot up almost 2.5% today...
... I don't have a market-history database, but if I did I would be taking a hard look at my historical data and asking how often has there been a spread of 7.5% in a single-day's move between the S&P 500 and Wilshire's US Bank Stock index. Without knowing the numbers, my intuition is that this is a very great anomaly.
Some anomalies are random, disconnected, irrelevant. I'm going to say for now, using little more than a little Foolish horse sense, that this particular anomaly is meaningful and important. Just one day! But at least something worth watching. It may just be that the baking "lead husky" that marketwatchers have been watching and allowing to dictate their own sentiment for months is now changing -- is dropping back in the pack -- is losing ground while the pack in fact begins to accelerate forward.
So let me back this blog up, as I often try to do, by making a CAPS pick as a proxy to reflect my own stated opinion, for educational and accountability purposes.
I'm going long QLD (ultra-long Nasdaq) for a several months' timeframe.
Fool on. --David
P.S. I foreshadowed this blog with a line or two this afternoon on Twitter, which I just started a few weeks ago. I'm DavidGFool, if you want to follow my infrequent -- though of course always deeply meaningful and unbelievably compelling -- tweets.