Financials: Struggling

Financials have struggled since the Government released its stress test results of their balance sheets in early May. One of the reasons for this is the amount of stock that financials have been issuing in order to pay back the Fed's TARP funds. Another reason is the significant run up financials have seen since March. KBE was up at one time almost 100%.

I am showing a chart of KBE-a financial ETF. You can double click on it to make it larger. You can see that KBE is down about 8% since finding its highs about a month ago. However, given its recent move some sort of profit taking is not unreasonable. What is a bit worrisome is the erosion in some of our money flow indicators. Right now there is no indication that the future in this correction will be anything more than one of time. But we will want to watch this. It is unlikely that the market can post any significant gains going forward if banks don't participate.

*Long KBE for certain clients. Long certain leveraged financial ETFs for appropriate accounts.