Multi-Year Lows on the Financials

RUT & BKX Study, Part II

By Bryan Bottarelli
Monday, June 09, 2008 10:43 AM EDT
Mon, 9 Jun 2008 14:43:00 GMT

Dear Bottarelli Research Member,

In past alerts, I’ve noted that extremely low consumer confidence readings (which we just experienced last week) have historically signaled market bottoms.

I’ve also noted how the Russell 2,000 Small Cap Index (RUT) has been trending higher throughout this weak market environment. And since small caps historically act as leading indicators, this was a positive sign as well.

RUT

But to be perfectly honest with you, the major market averages will not turn around until we witness solidification in the banking sector. And as you can see from the BKX chart below, the top collection of banking stocks is now trading for under $70.00 per share — and this low level puts this group below their book value.

BKX

In other words, the banks are getting clobbered. The selling pressure is so intense, that Wall Street is now valuing the country’s top banking stocks at less than the value that shareholders would theoretically receive if they were completely liquidated. I certainly don’t feel these low levels will last much longer. After all, the health of our entire economy depends on the banks. And therefore, this is something that must be fixed. No question about it. In my view, the Bear Sterns (BSC – NYSE) meltdown marked a strong buying opportunity back in March. And now, today’s move in Lehman (LEH – NYSE) could be offering a similar signal. In that spirit, there could come a time in the very near future to play a longer-dated call play on the BKX. In fact, this could be something I explore in an upcoming issue of Bottarelli Research LEAPS.

But in the meantime, it’s imperative that we continue to hold our water and maintain our current positions. Despite last Friday’s 400-point sell-off, every one of our call positions held its ground remarkably well. This tells me that our collection of upside call plays are truly strong from a technical perspective, so let’s hold our EOG June 140 Calls (EOG FU), NIHD June 50 Calls (QHQ FJ), DE June 80 Calls (DE FP), and our PTEN June 35 Calls (NZQ FG) for a coming bounce-back. I know that the recent market action has been thorny (to say the least), but we’ve seen environments like this before and they always come to an end. So let’s continue doing the best job that we can to absorb the market volatility, and I know we’ll all come out ahead in the end. Should any new trade opportunities come up throughout the day, you’ll be the first to know. But until then, don’t forget that Wednesday, June 11th is the cut-off date for your reserved Charter Membership space into Bottarelli Research LEAPS. Details below:

BOTTARELLI RESEARCH LEAPS: SPACES GOING FAST

I’m not one to beat around the bush, so I’ll tell it to you straight: Demand for our new Bottarelli Research LEAPS service has been off the charts. Therefore, I can only hold your reserved space until Wednesday, June 11th. After that, I’ll release your Charter Membership space to the public, where it’ll probably get taken in a matter of hours. Please don’t miss out on this dynamite opportunity to increase your weekly profit potential. If you haven’t already done so, be sure to lock in your Charter Membership before this Wednesday’s cut-off date. Trust me, you’ll be glad you did! Full details below:

http://www.bottarelliresearch.com/leaps/?T78931J079

And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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